16 August 2010 18:25 [Source: ICIS news]
By John Richardson
SINGAPORE (ICIS)--It always seemed as if the Asian polyethylene (PE) price rebound was built on a house of cards.
The Chinese economy is slowing down, the country’s domestic production has greatly increased and new capacity in the ?xml:namespace>
Hence the Asian PE report released by ICIS on 13 August, which revealed that, despite further moderate price rises, Asian producers were, at best, “cautiously optimistic”.
This followed the previous week’s bigger price surge (see chart below) on temporary production issues.
These included ExxonMobil's outage at its 600,000 tonne/year
A collection of other temporary factors could play a big role in supporting ethylene and therefore PE markets over the next few months – or could swing the other way and make conditions a lot worse.
First, with ethylene, the spot market in Asia has, on paper, become a great deal longer because of a 150,000 tonne/year surplus at Shell Chemicals in Singapore. The Shell cracker, which came on stream in March, is structurally long on C2s.
Lengthy problems in stabilising production of new derivatives capacity from crackers in the
Reasons for the six to nine months it can take to stabilise operations include manpower shortages and the huge scale and complexity of what’s being commissioned.
A further difficulty is that plants can, of course, suffer outages. This was the case with the recent report of a big, high density PE (HDPE) facility in the
The producer in question was forced to sell 30,000 tonnes/month of ethylene for three to four months – a big reason for the ethylene price declines before the Mailiao outage, an olefins trader said.
The perception is that this current wave of capacity from the
Spot pricing in
February was the last time ethylene was loaded from the Al-Jubail site in
“Historically, Al-Jubail has been exporting 20,000-40,000 tonnes/month. Essentially, 500,000 tonnes/year of exports have gone to zero,” he added.
Another negative – or positive, depending on which side of the fence you sit – is that increasing demand for long-haul cargoes is creating repositioning problems for ethylene vessels.
Lack of sufficient vessels is also expected to result in higher C2 freights until the end of next year, limiting arbitrage.
“Freight rates are on the rise and could go a lot higher. The
The long-running butene-1 shortage continues to significantly restrict linear low density polyethylene (LLDPE) supply
A wider disparity in container freight rates is benefiting the European PE industry, while hurting
“We usually see around 30% of Middle East polyolefins moving to Europe with the rest to Asia, but a bigger gap in rates to
“Because of the dramatic recovery in global trade, the gap between freight rates on the European routes to the Middle East compared with
“This is the result of
The outlook for European polyolefin demand remains uncertain, but supply has long been tight.
Limited PE and polypropylene (PP) supply was at first the result of deep operating rate cuts when the 2008 financial crisis began – and then also the rapid Chinese economic recovery, which enabled Europe to export significant volumes.
European polyolefin exports to
But Europe remains tight because of continued operating-rate discipline and the high freight rates that are discouraging buyers from acquiring
“European PE prices were recently as much as $400/tonne above those in Asia, but that was still not enough to attract
The longer all these temporary factors continue the longer producers might be able to squeeze out decent returns.
But the problem remains that an awful lot of surplus capacity still needs to be absorbed by a stuttering global economy.
“We haven’t seen the worst of things yet. More permanent shutdowns by higher-cost Japanese and other producers are clearly needed,” said a second source with the same global polyolefins producer we referred to earlier on.
People have been saying this for years, though, and plant closures are easier said than done for a myriad of reasons.
But the source made a good point when he added: “Rate cuts and permanent closures might occur if price reductions are $50-100/tonne per month rather than the increases we have seen of late.
“Otherwise, we could be struggling with fundamentally long markets throughout next year, with a recovery only occurring in early 2012.”
However, if you are higher cost, why not limp through until 2012, given that you might well have loads of money in the bank from the boom period?
($1 = €0.78)
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