OUTLOOK '09: US economy weighs on olefins demand, prices

24 December 2008 22:17  [Source: ICIS news]

By William Lemos

HOUSTON (ICIS news)--The sharp downturn in the US economy in the second half of 2008 is expected to last through at least the first six months of 2009, stifling demand for petrochemicals and keeping a lid on monomer prices.

The weaker economy and the drop in demand will likely draw market activity to a halt, one olefins market participant said.

“We might as well all go fishing in 2009 because it does not look like there will be much else to do,” the source said.

US monomer prices went into a tailspin in the fourth quarter of 2008, falling by more than 80% from record highs in the summer amid a slump in US consumer spending due to woes in financial markets.

US refinery-grade propylene (RGP) spot prices were as low as 12 cents/lb ($265/tonne, €191/tonne) in December, down from a peak of nearly 80 cents/lb in July, while ethylene plummeted to about 15 cents/lb from a peak of 70 cents/lb, according to global chemical market intelligence service ICIS pricing.

The dramatic drop was not the exception but the rule for the US petrochemical industry, as some other chemicals posted even sharper losses in the same period.

One US consultant said petrochemical prices would continue to fall in 2009, pressured by more softening in energy prices. However, the drop will not help trigger demand because US consumer confidence is very low, the source said.

US consumer confidence was at its lowest level in 50 years, according to the consultant.

In a best-case scenario, demand may pick up after July if consumer spending improves in the first half of next year, the source said, adding that US consumer spending represents 70% of GDP.

In the meantime, the petrochemical industry will continue to see layoffs and production shutdowns, the consultant said.

The impact of the latest US recession will be particularly hard on chemicals used in durable goods and construction, such as polypropylene (PP) and polyvinyl chloride (PVC), of which propylene and ethylene are key building blocks.

Polyethylene (PE), also a key end-market for ethylene, may fare slightly better because people may spend less but they still have to eat, one source said, referring to PE used in food-packaging applications.

But chemical demand is down elsewhere, especially when disposable income is involved, one market participant said.

The weak outlook for 2009 has triggered a series of production stoppages in the US olefins industry, including one permanent shutdown.

Flint Hills Resources (FHR) on 6 November said it would permanently close its 348,000 tonnes/year Odessa olefins plant in Texas in 2009 to focus on polymer production elsewhere.

The company then announced a shutdown at its Port Arthur cracker in Texas, citing weak demand for base chemicals. FHR said on 1 December that the 621,000 tonnes/year unit would be idled for an unspecified length of time.

Seven other US olefins plants were taken off line in the fourth quarter, with the most recent shutdown announced by Equistar on 18 December.

The company said it would temporarily close its Chocolate Bayou plant in Texas amid weak demand for petrochemical derivatives.

The shutdown at the 544,000 tonne/year unit was the second announced by Equistar.

The company had previously idled its La Porte olefins plant in Texas, saying on 31 October that the 789,000 tonnes/year would be off line for 2-3 months due to the poor market conditions.

Total US olefins capacity estimated to be offline in end-December was 6.6m tonnes/year, including two crackers that were down since September due to hurricane-incurred damage.

The figure does not take into account the permanent shutdown announced by FHR in Odessa. Nor it includes a sharp reduction announced by Dow Chemical at its large Freeport complex in Texas.

Dow said on 4 December it would cut operating rates in Freeport to less than 40% of capacity. Dow has 75 production units at the site, including two crackers with combined capacity of 1.6m tonnes/year.

US ethylene installed capacity is estimated at 28.6m tonnes/year, according to ICIS Plants and Projects.

Stoppages at US olefins plants include:

* Equistar (Chocolate Bayou, Texas - 544,000 tonnes/year). Shutdown announced on 18 December.

* Westlake Chemical (Lake Charles, Louisiana - 544,000 tonnes/year). The company said on 17 December it was idling one of its ethylene plants in Louisiana because of weak demand.

* Chevron Phillips (Port Arthur, Texas - 803,000 tonnes/year). The company said on 15 December the plant would go down for two months due to continued weak demand for the monomer.

* FHR (Port Arthur, Texas - 621,000 tonnes/year). The company said on 1 December it would idle the unit for unspecified length of time.

* Chevron Phillips (Cedar Bayou, Texas - 803,000 tonnes/year). Maintenance shutdown announced on 1 December. Expected to be off line for up to 30 days, depending on market conditions.

* Chevron Phillips (Sweeny 22, Texas - 295,000 tonnes/year). The company said on 21 November it would shut down the plant for an unspecified length of time.

* FHR (Odessa, Texas - 348,000 tonnes/year). The plant will be permanently shut down in the first half of 2009. The announcement was made on 6 November.

* Formosa (Point Comfort I, Texas - 680,000 tonnes/year). Formosa began a 35-day turnaround in the first week of November. Company spokesperson said unit remained off line.

* Equistar (La Porte, Texas - 789,000 tonnes/year). A shutdown was announced on 31 October. It was expected to be off line for 2-3 months.

* ExxonMobil (Beaumont, Texas - 826,000 tonnes/year). The unit has been off line since September due to hurricane damage. The restart was unknown.

* DuPont (Orange, Texas - 680,000 tonnes/year). The unit has been off line since September due to hurricane damage. The restart date was unknown.

($1 = €0.72)

For more on ethylene and propylene visit ICIS chemical intelligence
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For more on Dow Chemical, ExxonMobil and DuPont visit ICIS company intelligence

By: William Lemos
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