Fragile demand may cap Asia ethylene rebound

12 February 2009 05:33  [Source: ICIS news]

By Peh Soo Hwee

SINGAPORE (ICIS news)--Recent gains in Asian ethylene spot prices may soon end amid weakening demand downstream, as new polyethylene (PE) and monoethylene glycol (MEG) exports from the Middle East emerge in the second quarter, industry sources said on Thursday.

The start up of nine new crackers in China and the Middle East this year (see table below) and the onslaught of the global economic downturn have made it difficult to predict the outlook for ethylene and its derivatives despite a rebound in petrochemical prices since the start of 2009.

In mid-February, Rabigh Refining and Petrochemical Co (PetroRabigh) will start up its 1.25m tonne/year facility in Rabigh, located at the Red Sea coast of Saudi Arabia.

Derivative products such as PE and MEG are slated to be shipped out to Asia from Saudi Arabia starting end-March, igniting worries that prices in this region would come under pressure from the influx of cargoes from the Middle East.

“If (Rabigh) starts exporting PE to Asia, fundamentally and psychologically, PE prices would come down,” said a Japan-based olefins trader.

A fall in derivative pricing, particularly PE, is expected to derail demand for ethylene, which had risen to a four-month high of $700/tonne (€ 539/tonne) (CFR) northeast (NE) Asia level in early February – a level not seen since 17 October 2008 – as importers and end-users replenished stocks after the lunar new year holidays in late January.

China's measures to stimulate the domestic economy through ensuring ample liquidity could also have contributed to the price gains.

In contrast, ethylene had slumped to a five-and-a-half year low of $350-410/tonne CFR NE Asia in late November last year as the global economic crisis unfolded.

The price recovery, however, could be short-lived due to strong resistance to offers above $700/tonne CFR Asia amid uncertainty over the price outlook for ethylene derivatives.

“Based on today’s margins, we can accept ethylene at $700/tonne but come April, things could turn around quickly,” said a southeast Asian-based PE producer.

Some market participants said an anticipated reduction in demand from China – Asia’s largest importer of ethylene – partly due to new crackers coming on stream this year – would also cap gains for ethylene.

The country imported 721,204 tonnes in 2008, representing a 41 percent increase from 2007 volumes of 509,821 tonnes.

“It won’t be easy for ethylene prices to keep going up due to new start-ups in China,” said an olefins trader in South Korea, which is a main ethylene exporter to China.

Tough decisions could loom ahead for naphtha-based cracker operators in Asia, who may have to consider trimming operating rates.

Regional producers had scaled back ethylene production to 70-80% of capacity in October and November 2008 due to the deepening economic crisis, which had hurt exports of finished goods.

As of February 2009, most of the crackers in Asia were running at 85-100%. The exception was in Japan, where poor domestic demand has made it tough for crackers to operate above 80%.

“It's very difficult to load up after the new crackers in the Middle East come up. I guess we'll have to load down again,” said a Korean producer. “The Middle East operations and world economy situation have made it very challenging for operators this year.”

Cracker projects on stream in 2009  

Location	Company Name	Capacity (t)	Start up
Rabigh, Saudi Arabia	Rabigh Refining and Petrochemical Co	1,250,000	Mid-Feb
Yanbu, Saudi Arabia	Saudi Yanbu National Petrochemical Co	1,300,000	Q1
Quanzhou, China	Fujian Refining and Petrochemical Co	800,000	April
Al Jubail, Saudi Arabia	Eastern Petrochemical Co (Sharq)	1,300,000	Q2
Ras Laffan, Qatar	Qatar Petrochemical	1,300,000	Q3
Panjin, China	Liaoning Huajin Tongda Chemical	450,000	Aug
Xinjiang, China	Dushanzi Petrochemical	1,000,000	Q3
Tianjin, China	Sinopec-Sabic JV	1,000,000	Q4
Zhejiang, China	Zhenhai Refining and Chemical Co	1,000,000	Dec

 ($1 = €0.77)

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By: Peh Soo Hwee
+65 6780 4359

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