10 June 2011 12:07 [Source: ICB]
Although current low MEG demand is causing the shutdown of plants, others are being lined up for expansion or debottlenecking
It is a turbulent time for monoethylene glycol (MEG). At the start of the year there were expectations of too much supply; now a series of plant shutdowns has increased market tightness, with worries that there will not be enough product to satisfy growing demand.
In March, Asian MEG prices were expected to fall after a long uptrend due to ample supply. Sentiment was bearish, and since then, several producers have felt compelled to announce a number of planned turnarounds.
Saudi Arabia-based petrochemicals giant SABIC said it would shut eight major MEG units in that country this year - six in the first half of the year, with the two remaining to close in the fourth quarter to avoid high temperatures during the summer. SABIC is the world's largest MEG producer, with a total capacity of 5.71m tonnes/year. In late April, Rabigh Refining and Petrochemical shut its 700,000 tonne/year MEG plant at Rabigh in Saudi Arabia for two months. Yanpet shut its 350,000 tonne/year MEG plant in early May for 35 days of maintenance.
In South Korea, LG Chem began a month-long turnaround of its 125,000 tonne/year MEG plant in Daesan in late March, while in early May, Samsung Total Petrochemicals began a month-long shutdown of its 120,000 tonne/year MEG plant in Daesan. Kuwait's EQUATE shut down 550,000 tonnes/year of MEG capacity at its facility in Fhuaiba, Kuwait, slightly less than one-half of its total capacity, at the end of May for a turnaround.
These shutdowns at least have scheduled restarts - but not so with two large producers in Asia. In March, Shell declared force majeure on MEG after shutting down its 750,000 tonne/year mixed-feed cracker on Pulau Bukom near Singapore, a situation that remained unchanged at the beginning of June. Nan Ya Plastics, a unit of Taiwanese petrochemicals major Formosa Plastics Corp, planned to shut down two of its four MEG units in May after a fire broke out at a pipeline at Formosa's Mailiao petrochemical complex in Taiwan. The two plants have a combined capacity of 720,000 tonnes/year and the four MEG units have a combined 1.9m tonnes/year of capacity - equivalent to 10% of Asia's total MEG capacity. Of that, Nan Ya supplies 100,000 tonnes of MEG to China each month.
Although MEG prices had been on the rise since July 2010, spot prices fell in early March to $1,230-1,240/tonne (€898-905/tonne) CFR China Main Port (CMP) - down by $25-28/tonne from the previous week.
The impact on the market has been steady. Early in May, Dubai-based producer MEGlobal, a 50:50 joint venture between US-based Dow Chemical and Kuwait's Petrochemical Industries Company, rolled over its June Asian Contract Price (ACP) MEG nomination from May at $1,250/tonne. "We believe prices will fluctuate in a narrow range for a certain period of time," said an MEGlobal official.
Potential downside for spot MEG prices is limited, as there is consistent buying interest from traders who are optimistic for the second half of this year in view of the upcoming shutdowns in the region, the official noted. "Hefty feedstock ethylene costs also lent support to MEG prices," they said. However, abundant supply and lower-than-expected downstream demand should continue to exert downward pressure on prices, they added.
Meanwhile, Asia spot MEG prices for early May were discussed at around $1,095-1,105/tonne - a drop from March's $1,230-1,240/tonne. A week later, in order to narrow their gaps against spot prices, SABIC and Shell both proposed ACPs for June MEG at $50/tonne lower than for May - also to $1,250/tonne. This followed MEGlobal's ACP announcement.
In late May, the Taiwanese government ordered Nan Ya to close its MEG plants in the wake of the aforementioned pipeline fire, and the subsequent supply concerns causing MEG prices in Asia to surge $15-30/tonne.
Prices were assessed at $1,140-1,160 CFR CMP, an increase from mid-May's Asia spot MEG prices of $1,115-1,120/tonne CFR CMP. At the start of June, Asia's spot MEG continued to spike, surging by $70-80/tonne. Short-term Asian MEG prices are likely to continue to hover within a narrow range for some time. Many traders have said that buying sentiment should continue to be depressed by the expected soft co-feedstock purified terephthalic acid (PTA) prices in June, which is due to the upcoming large new capacities in June-August plus tight cash flows and credit limit. Players have deemed that it is not the right time to speculate on MEG prices.
However, MEG is viewed as a relatively safe and attractive investment for traders compared with other related products - including PTA and diethylene glycol (DEG) - because the market fundamentals for MEG are healthier, with heavy turnarounds expected in the second half of this year. Some traders have said that China's monetary policy may ease slightly in the third quarter of 2011 in view of a slowdown in inflation, which would help to revitalize trading.
Downstream in Asia, the sales-to-output ratio at most Chinese polyester yarn plants has stabilized at 100-120% for the start of June, indicating stable and healthy demand from downstream textile processors. MEG and PTA are the top feedstocks for polyester production. It was assumed that Nan Ya being planned to close had boosted pricing, but when the Taiwanese government postponed the shutdown for seven days until June 8, Asia MEG prices fell.
"The market is disordered now as most people are still [processing] the news and don't know whether to sell or buy," a Shanghai-based trader said.
Selling indications as low as $1,200/tonne CFR CMP were heard, down $40-70/tonne from the closing price of $1,240-1,270/tonne CFR CMP the day earlier, but there were no buyers.
EXPANSIONS AND NEW SOURCES
Before the postponement of the Nan Ya shutdown was announced, SABIC was planning to raise its monthly MEG allocation to China in July. SABIC sells 200,000 tonnes of MEG to China on a monthly basis.
Shell plans to sign an agreement with Qatar Petroleum on a petrochemical joint venture in Ras Laffan, Qatar, this year. With a start-up expected for 2016/2017, the project includes a cracker with a capacity of slightly less than 1m tonnes/year and two 750,000 tonne/year MEG plants. Shell also plans a 15-20% capacity expansion of its Singapore cracker three years from now, which may include a downstream expansion at its 750,000 tonne/year MEG plant in Jurong, Singapore. However, a shortage of ethane feedstock may deter expansion, according to MEGlobal.
Global demand is expected to continue growing at around 7% with China and India leading the way, MEGlobal has said. Demand in the former for 2011 is expected to be 17% - the same as in 2010. India is expected to post double-digit demand growth for 2011. China's MEG consumption was more than 9m tonnes/year for 2010, accounting for 43% of global demand.
"Fundamentally nothing has changed, and MEG and DEG will be tight in the next three to five years," said Frank Hanraets, vice president, commercial, at MEGlobal. "Hardly any new capacity will come on stream in this time, whereas approximately 1.5m tonnes/year of additional product will be needed to satisfy demand," he added. The tonnage required is equal to that of two new world-scale MEG plants, according to MEGlobal. Since the Lunar New Year in February, short-term demand in the region "has not been as strong as expected," said Hanraets. However, coinciding with the start of seasonal PET demand in the US and Europe, "we are seeing demand picking up in Asia," he noted.
MEGlobal markets 3m tonnes/year of MEG globally, including 1.2m tonnes produced at its three plants in Alberta, Canada - which the company is considering debottlenecking. Expanding facilities is also being considered. The company has concerns regarding MEG feedstock sources, but looking ahead it believes new technologies, such as methanol-to-olefins, coal-to-olefins or bio-based MEG, will provide them. That said, Hanraets said that "it will take some time before we get meaningful commercial production" from such technologies.
One company attempting these new methods is China's Hebi Baoma Group, which is set to invest yuan (CNY) 2.5bn ($386m) on a new 250,000 tonne/year coal-based MEG facility at Hebi in Henan province. The plant is expected to start up in the first half of 2013 with an initial capacity of 50,000 tonnes/year, a company source said. The rest of the facility will come on stream about six months later.
Additional reporting by Becky Zhang, John Richardson, Peh Soo Hwee, Pearl Bantillo, Nurluqman Suratman and Tahir Ikram in Singapore, and Joseph Chang in New York
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