Asia will not be major player for new Mideast capacity - analyst

25 March 2010 15:51  [Source: ICIS news]

HOUSTON (ICIS news)--Petrochemical investments in China mean that Asia will not be able to consume all olefins derivative material from new Middle Eastern capacity, putting producers in other regions around the world at risk, a consultant said on Thursday.

Historically, derivative exports from the Middle East have been in balance with Asia’s net import requirement, said Dave Witte, executive vice president of business advisory services for Chemical Market Associates (CMAI) said at the 2010 World Petrochemical Conference in Houston.

However, new Chinese capacity expected online in the next two years will likely cause Asia’s net import requirement to plateau, he noted. Then, because of the Middle East cost advantages, other regions will be targeted at higher than historical levels.

“Because of the cost-advantaged nature of the production, the surplus will get sold into markets somewhere,” Witte said. “No matter how depressed prices and margins are in other regions, this material will be able to compete, and all regions must consider themselves target markets.”

In polypropylene (PP), for example, western European producers have already begun to lose key export markets in Turkey and north Africa to Saudi production, he said.

Middle East propylene derivative exports were about twice the level in 2009 than they were in 2007 and 2008, he said, and that figure could grow by four or five times in 2010.

About 4m tonnes of new propylene capacity was added in the Middle East in 2008 and 2009, accounting for about half of global capacity additions in that time. Another 4m tonnes is expected online by 2014.

Much of the propylene wave is a result of Saudi Arabia, whose current crop of crackers are not only ethane-based but also run on heavier feedstock such as propane, butane or light naphtha, each of which yields recoverable propylene volumes, unlike ethane, he said.

That strategy is a result of the Saudi government seeking to diversify its petrochemical industry into other chains, Witte said.

In ethylene derivatives, polyethylene (PE) exports alone are expected to increase by 3m tonnes in 2010, putting unwelcome pressure on the world’s supply/demand balance since no other regions are running close to full capacity, he said.

PE exports increased by 1.4m tonnes in 2009, with ethylene glycol following suit with an additional 800,000 tonnes. That did not significantly impact prices and margins in other regions due to capacity and operating rate cuts elsewhere and better-than-expected demand in China, Witte said.

However, that will not be the case in 2010 and beyond, when exports could double the 2009 figures while also competing with the additional Chinese capacity.

Witte also noted that claims about the Middle East “running out of ethane” were irresponsible, adding that ethane supplies were sufficient and that considerable potential remained for further olefins investment in the region.

For more on PP and PE visit ICIS chemical intelligence
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ICIS has launched weekly pricing reports in Africa for polyethylene and polypropylene. For more information contact Nadine Spoeri

By: Ben DuBose
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