FocusAsian crackers cut October production on poor margins

05 October 2009 06:52  [Source: ICIS news]

Asia cracker margins graph

By Peh Soo Hwee

SINGAPORE (ICIS news)--Naphtha cracker operators in Asia have started reducing output in October due to squeezed margins, putting an end to five months of high run rates at plants, as they try to stem further falls in olefins prices, market sources said on Monday.

Recent declines in ethylene and propylene values, as well as weak derivative markets, had put margins firmly in the red, making it unprofitable for some producers to run at close to 100%, they said.

“There is no profit in selling ethylene,” said one Japanese producer, adding that it needed at least a spread of $250/tonne (€173/tonne) with the value of feedstock naphtha to make exports viable.

Ethylene margins in northeast (NE) Asia based on naphtha feed had slumped 64.5% week on week to $60/tonne at the start of the fourth quarter, according to the ICIS weekly ethylene margin report.

Spot ethylene prices sank to a four-month low of $790-810/tonne CFR (cost and freight) NE Asia in early October, while propylene was traded at $870-930/tonne CFR NE Asia – the lowest level in three months – over the same period, data from ICIS pricing showed.

Weakness in key downstream polyethylene and polypropylene markets was partly to blame for the erosion in olefin values, traders said.

Leading the charge to cut operating rates were the Japanese as they were also saddled with inventory pressures from derivative plant turnarounds this month. At least three companies – Mitsui Chemicals, Sanyo Petrochemical and Sumitomo Chemical – had said they would run their crackers at lower rates of below 90%.

“The balance in Asia is quite loose,” said a regional olefins trader. “The Japanese exported huge volumes so some crackers will have to cut production.”

He estimated that around 17-20 cargoes (combined spot and term cargoes), or about 50,000-60,000 tonnes of ethylene, were committed to be loaded this month at a time when spot demand from China – Asia’s largest importer of ethylene – had shrunk due to start-up of new crackers in the country.

In Taiwan, state-owned Chinese Petroleum Corp (CPC) was running its three crackers in Linyuan and Kaohsiung at an average rate of 90% in October while Formosa Petrochemical Corp cut ethylene output to around the same rate this month at its Mailiao plants, market sources said.

Formosa's production cuts, however, were related to recent outages at its derivative monoethylene glycol (MEG) facilities, they added.

Producers in Korea, however, were keeping cracker run rates at 100% for now. Some traders said this was not surprising as they were also slower to adjust ethylene production when petrochemical prices plunged during the fourth quarter of last year.

“The Koreans were the last ones to bring down their cracker operating rates in 2008,” one Singapore-based trader said.

($1 = €0.69)

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By: Peh Soo Hwee
+65 6780 4359

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