FocusCracker operators in Japan eye higher rates in April

01 April 2009 06:03  [Source: ICIS news]

By Peh Soo Hwee

SINGAPORE (ICIS news)--Cracker operators in Japan plan to crank up ethylene production this month in anticipation of a pick up in derivative polymer demand during the new fiscal year (April-March), producers and traders said on Wednesday.

“We are planning to increase production in April to 80-90% because polyethylene and polypropylene (PP) operating rates are expected to be raised compared to March,” one producer said.

Among those eyeing the above higher rates included Showa Denko K.K., Mitsui Chemicals, Sumitomo Chemical and Maruzen Petrochemical. The 80-90% target represents up to a 10 percentage point increase from March levels.

Cracker rates in Japan were among the lowest in Asia in the first quarter. Ethylene production levels had hovered at 70-80% in February-March compared with 90-100% in China and South Korea during the same period.

The lower rates in Japan were mainly due to a heavy reliance on weak domestic demand particularly from the automotive industry – a key growth engine for the world’s second-largest economy.

Car sales worldwide had plummeted with the onset of the global economic downturn in late 2008 as consumers tightened their belts. This in turn had affected demand for petrochemicals such as co-polymer polypropylene, which is an important plastic for car parts.

Japan’s automotive production shrank for the fifth consecutive month in February, sliding 56.2% year-on-year to 481,396 units, reflecting sharp declines in the output of standard and small passenger cars, according to statistics from the Japan Automobile Manufacturers Association (JAMA).

But with the start of the new fiscal year in April, producers were hopeful that end-users will be enticed to increase output after having cleared their stocks last month, which will stimulate demand for polymers and encourage higher cracker rates.

“End-users like car producers had reduced stocks at the end of the financial year in March and after that, we expect that they will pick up operating rates at their factories,” said another producer.

Some cracker operators also planned to scale back on ethylene exports in April and May in line with an expected improvement in domestic derivative demand.

April loading cargoes of Japanese origin were earlier sold at around $600/tonne (€450/tonne) on an free on board (FOB) basis – comparatively lower than fixtures for cargoes of South Korean origin, which were concluded up to $640/tonne FOB Korea, according to data from global chemical market intelligence service ICIS pricing. 

“The Japanese are reliant on domestic demand so when they have surplus, they just want to sell the cargoes and clear the stocks,” said an olefins trader. “But there should be less cargoes for May loading also because of some turnarounds.”

Mitsubishi Chemical Corporation is slated to take its 375,000 tonne/year No 1 cracker in Kashima off line in the first week of May for a near two-month long maintenance while its other 450,000 tonne/year facility in Mizushima is due for a shutdown from mid-May to early June, a company source said.

($1 = €0.75)

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By: Peh Soo Hwee
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