INSIGHT: Japan reels in face of natural disaster
14 March 2011 16:32 [Source: ICIS news]
By Nigel Davis and John Richardson
?xml:namespace>DUBAI (ICIS)--Japan's biggest earthquake in living memory and the devastating tsunami which followed has hit the country's significant petrochemicals and chemicals industry.
Japan’s population and economy have been dealt a shattering blow, the consequences of which are yet hardly imaginable.
Potentially hazardous manufacturing facilities will have automatically shut down with the first massive shock, which measured 9.0 on the Richter scale, on Friday 11 March. The disaster that has unfolded subsequently has dealt power supplies and the infrastructure of the south island of Japan a mighty blow.
The human cost of the tragedy has yet to be determined. And fears have centred on the stability of Japan’s essential nuclear electricity generating capacity. Fears are focused on the stability of some of the country’s vitally important nuclear reactors, and the consequences should there be a breach of containment of nuclear material at any one of these.
In the immediate aftermath of the massive quake, for which Japan was better prepared than any nation on Earth, and the devastating tsunami, the focus is on the humanitarian relief effort. Over time attention will shift to re-building broken physical communication links.
There was some chemicals production capacity located near the city of Sendai on the northeast coast of Japan’s south island. Graphic images of the uncontrollable fire at the JX Nippon Oil refinery may give some indication of the fate of facilities there.
Further south, around Tokyo, lies a large proportion of the Japanese upstream industry.
It was clear on Friday, after the earthquake hit, that crackers and other facilities had shut down automatically and details have emerged of current closures.
How long it might take for those plants to come back on stream remains to be seen. Four crackers have shut down and three further crackers are running at reduced rates, ICIS reported on Monday. Vitally important logistics links have been damaged, and manufacturing companies are expected to face difficult supply chain problems.
Japan is a major producer of petrochemicals and one of the world’s largest producers of chemicals of all sorts. It produced 6.9m tonnes of ethylene in 2009, 5.6m tonnes of propylene, 4.3m tonnes of benzene and significant volumes of primary plastics and plastics and fibre intermediates, according to the Japan Petrochemical Industry Association. Its chemical companies are among the world’s largest.
UBS estimated on Monday that 20% of Japan's refining capacity, 27% of its ethylene capacity and 30% of its aromatics production had shut down.
Japan is a major importer of naphtha, so some refiners will struggle to place their volumes. However, UBS sees an upside for Asian refining margins.
In the immediate future, exporters to China such as Taiwan's Formosa Plastics Corp and Formosa Chemicals & Fibre, and South Korea's LG Chem are expected to benefit most from the outages, as a result of their product mix, the bank says.
The lost production might also help to re-balance what has been a weak polyolefins market in China.
Japan is a major exporter of paraxylene (PX) and styrene monomer (SM). The Asia PX market was already tight before the disaster because of a heavy production plant turnaround schedule.
Some 2m tonnes of ethylene capacity in Japan has been affected, UBS estimates, which translates to 27% of total ethylene capacity in Japan or 4% and 1.4% of Asia and world ethylene capacity, respectively. The aromatics production capacity affected could be around 5.7m tonnes or 30% of the country’s production capability.
By: Nigel Davis+44 20 8652 3214
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