Global ethylene op rates to lag broader recovery - US consultant

24 March 2010 22:57  [Source: ICIS news]

HOUSTON (ICIS news)--Operating rates for global ethylene producers have yet to bottom out and will trail economic recovery because of the new wave of Asian capacity expected to come online in 2010, a consultant said on Wednesday.

Operating rates will bottom at near 80% in mid-2010 with a surplus of 21m tonnes relative to 2010 demand, before conditions begin to improve in 2011, said Mark Eramo, executive vice president of market advisory services with Chemical Market Associates (CMAI).

However, the industry is unlikely to hit a 90% operating rate until 2014, with demand growth only at about 5% annually, he said. As such, any expedited timetable of recovery would likely result from greater-than-expected asset closures, rather than demand growth.

Eramo spoke at the 2010 World Petrochemical Conference in Houston.

The estimates include the assumption that an additional 4.5m tonnes of capacity will be eliminated, Eramo noted. If there are no additional closures, operating rates would still remain below 90% even in 2014, resulting in a “prolonged period of reduced industry profitability”, he said.

For 2010, the expected ethylene surplus of 21m tonnes is equivalent to about 18% of overall demand. It is unlikely to be significantly different until 3-4 years down the line, Eramo said.

By 2014, the surplus will be below 8m tonnes and less than 6% of global demand, representing a “more manageable level”, Eramo said.

The anticipated surplus conditions - as well the lag relative to broader recovery - are the result of delays in Asian projects, particularly in China, that should start up in 2010, he said.

Ethylene margins in 2009 were not hit as severely as forecast based on several start-up delays, but 7m tonnes of new capacity should hit in 2010 and force oversupply conditions in all regions for years.

However, North American companies have already responded aggressively with closures, and currently hold some pricing advantages due to the increased profitability of ethane-based cracking, he said.

As such, a majority of the “older, high-cost” assets that need to be shut in 2011 and 2012 are in Asia and Europe, rather than North America, Eramo said.

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By: Ben DuBose
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