Asian crackers brace for leaner times, implement rate cuts

05 June 2009 05:59  [Source: ICIS news]

By Steve Tan

SINGAPORE (ICIS news)--Asian naphtha cracker operators are under pressure to cut production rates as feedstock costs are expected to rise, coinciding with an influx of new Middle Eastern and Asian capacity, market sources said on Friday.

Indonesia’s sole cracker operator Chandra Asri intends to slash production rates to a low of 75% from June due to poor margins from derivatives such as polyethylene (PE) and relatively low ethylene prices, a source close to the company said earlier.

Following a rise in crude futures prices, Asian open-spec naphtha prices rose $18/tonne (€12.78/tonne) on Friday, with second half July indications at $596.50-599.50/tonne CFR (cost and freight) Japan.

In comparison, ethylene prices were slower to rise, notionally pegged around $780-820/tonne CFR NE Asia, resulting in a thinning spread for cracker margins.

In northeast Asia, Taiwan’s largest cracker operator Formosa Petrochemicals had also made plans to cut rates to 90% from July, a source said on Thursday. This affects all three of its crackers in Mailiao.

High feedstock costs were the main driver behind the cuts at its facilities, which produce as much as 2.9 m tonnes/year of ethylene.

South Korean cracker operator Honam Petrochemicals also indicated that rates at its 1m tonne/year cracker at Daesan would be cut to around 90% in July, in line with reductions at its downstream MEG operations, including a planned shutdown of its 250,000 tonne/year MEG line at the end of this month.

“Our margins for MEG are squeezed, we’re better off selling ethylene, which we’d done so already,” a company source said.

“But naphtha is so high too now, we would not want to run [overall] operations too high either.”

Asian crackers have veered away from their usual strategy of maintaining full operating rates from last year, adopting a more flexible approach in 2009 in the hopes of avoiding a catastrophic fall in prices seen in the third quarter of 2008.

Petrochemical prices had plunged in the third quarter of 2008 as naphtha crackers were unable to cut production in response to mounting inventories and a dramatic drop in demand.

A whole slew of new ethylene capacities in China and the Middle East is also expected to come on stream later this year, thereby adding pressure from the demand side on integrated cracker operators.

($1 = €0.71)

Peh Soo Hwee and Salmon Aidan Lee contributed to the story

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By: Steve Tan
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