OUTLOOK’09: Asian chems fear Middle East supply pressure

24 December 2008 03:13  [Source: ICIS news]

By Bohan Loh

SINGAPORE (ICIS news)—The outlook for Asian petrochemical producers remains grim into 2009, as pressures of dwindling global consumer demand and ample Middle East petrochemical capacities threaten to eat into their market share, market sources said.

“Chemical prices are likely to continue on a downtrend trend as some new capacities will come on stream, especially the polyolefin plants in the Middle East. Demand is also not expected to improve in the short-term,” said Wang Xixin, a chemical analyst at brokerage firm, Guolian Securities in Wuxi, China.

“So I think it is still a tough year in 2009, maybe tougher than this year,” Wang added.

Business advisory firm KPMG International has projected ethylene capacities in the Middle East to increase to 33m tonnes/year by 2012 from 14.3m tonnes/year in 2007 while the combined polyethylene and polypropylene capacities in the region are expected to rise to 30m tonnes/year from 11.3m tonnes/year during the same time period.

The new year will also pose a daunting challenge for Asian petrochemical players as capacity expansions in the Middle East will result in excess materials, which global markets will not be able to absorb from 2010 onwards, said KPMG.

Other marker players said naphtha-based crackers in northeast Asia would face stiff competition from ethane-based producers in the Middle East which enjoyed competitive feedstock advantages.

“Japan and Korea cracker operators should feel the pinch when the plants in the Middle East come on stream as most of them are naphtha-based,” said Qu Guangdong, regional vice president and senior consultant at SRI Consulting.

“Although most of China’s crackers are also naphtha based, China has a market position advantage and the business environment wouldn’t be so bad for them,” he said.

Qu, however, said that the primary target market for materials from the Middle East should be the European regions due to geographical proximity but cargoes that came to Asia would put added pressures on prices in the region due to low production costs in the Middle East.

However, the on-going global financial crisis might delay further the time taken for the facilities in the Middle East to be fully operational, he said.

“I think some of the crackers might be postponed for a year or two. Same goes for projects in China,” Qu said.

Some market sources said that it was inevitable that there would be further consolidation in the Asian chemical industry, which was expected to witness large merger and acquisition (M&A) deals in 2009.

“We would probably see some big M&A next year. Older and less efficient plants should be scrapped within the next 2-3 years,” said a northeast Asian styrene monomer producer.

In a recent interview with German newspaper, Handelsblatt, BASF chief executive offier Jurgen Hambrecht was quoted as saying: “There will be fewer chemical companies”.

With contributions from and Dolly Wu and Judith Wang from CBI China

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By: Bohan Loh
+65 6780 4359

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