FocusNew cracker start-ups in SE Asia to weigh on olefin prices

24 March 2010 07:50  [Source: ICIS news]

By Peh Soo Hwee

SINGAPORE (ICIS news)--Olefin prices may come under pressure following the successful start-up of new crackers in southeast (SE) Asia, amid prevailing weakness in the key derivative polymer sector, market participants said on Wednesday.

Energy giant Shell announced on Wednesday that it started up its 800,000 tonne/year mixed feed cracker in Singapore this week, with on-spec ethylene produced on 22 March.

In Thailand, Mab Ta Phut Olefins – a joint venture between Thai conglomerate Siam Cement Group (SCG) and US major Dow Chemical – was also heard to have achieved on-spec production at its 900,000 tonne/year naphtha cracker last week, market sources said.

Mab Ta Phut Olefins officials were not available for comment.

New cracker capacities coming on stream had coincided with poor business conditions in downstream sectors, ranging from polymers to vinyls, which would weigh on spot discussions, according to some market participants.

Shell was expected to export around 150,000 tonnes of ethylene and 250,000 tonnes of propylene on an annual basis, while Mab Ta Phut Olefins would ship out more than 100,000 tonnes of propylene a year, they added.

“Derivative sentiment is very weak and polymer prices keep dropping,” said an olefins-based trader in Japan.

Ethylene was traded at $1,170-1,230/tonne (€865.8-910.2/tonne) CFR (cost and freight) northeast Asia last week, almost at parity with high density polyethylene film grade values, which were assessed at $1,180-1,280/tonne CFR China over the same period, according to data from ICIS pricing.

Propylene spot prices were hovering at $1,240-1,300/tonne CFR NE Asia last Friday, close to polypropylene (PP) flat yarn prices at $1,250-1,330/tonne CFR China, based on same data.

The olefin-to-polymer break-even spread is usually around $150/tonne, market sources said.

Ethylene and propylene buying ideas for second-half April parcels were weaker than for prompt parcels as market players were anticipating the price pressure from the start-up of new capacities, market sources said.

Price indications for prompt material were close to $1,200/tonne CFR SE Asia, while buying ideas for second-half April cargoes were heard at low $1,100s/tonne CFR SE Asia levels, they said.

Selling ideas, meanwhile, were generally still pegged at $1,200/tonne CFR SE Asia and above, market players said.

But Shell’s cracker in Singapore was just running at low operating rates, said an ethylene end-user in Indonesia, adding that all ethylene production at the plant would likely be supplied to the company’s downstream monoethylene glycol (MEG) plant in the near-term.

Shell runs a derivative 750,000 tonne/year MEG plant in Jurong island, which is adjacent to Bukom, where the cracker is located.

“Any contractual cargoes [from Shell] are likely to be exported from May," the Indonesian end-user said.

The bulk of the crackers in Asia were still running at high operating rates of 90-100% for the third straight month this year, but this could change if ethylene prices correct sharply, traders said.

“If ethylene prices fall below $1,100/tonne, we will likely see some rate cuts,” said the same olefins trader.

($1 = €0.74)

Read John Richardson and Malini Hariharan's Asian Chemical Connections blog
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By: Peh Soo Hwee
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