07 November 2011 00:00 [Source: ICB]
The primary outlet for propylene is polypropylene (PP), which accounts for nearly two thirds of global consumption. Other important derivatives include acrylonitrile (ACN), acrylic acid, oxo-alcohols, propylene oxide (PO), and cumene. Propylene is also used to make high octane gasoline blendstocks and can also be blended into propane.
European players report a mixed picture for demand this year. While the first half showed strong demand, the market turned downwards significantly in the second half. Supply started to lengthen in May, as production resumed after maintenance turnarounds and demand for PP slowed. A series of production problems at derivative plants then caused supply to lengthen dramatically, and stocks stayed high through June, July and August.
Cracker cutbacks and exports - mainly to the US Gulf and Latin America - helped to offset some of the pressure, but US prices dropped in October and export opportunities have now waned. Weak demand and falling prices in Asia have also limited interest in exporting East.
The European market showed signs of stabilizing in September, and players say that cracker systems are now starting to become more balanced. Crackers are said to be operating at 70-80% capacity, although further reductions in November and December are still a possibility.
Demand remains subdued as players are concerned about the current economic conditions and buyers are focused on keeping year-end inventory levels low.
The UK's Shell Chemicals will close its 2B cracker in Wesseling, Germany, by the end of this year. In Italy, the Polimeri Europa cracker and downstream units in Porto Torres, Italy, have closed to make way for a bio-based complex. US producer ExxonMobil shut its small plant in Fawley, UK, in 2010. Several crackers in Eastern Europe are closed for market reasons, and Switzerland-headquartered INEOS still has to decide whether to close its G4 cracker at Grangemouth, UK.
Figures published by Belgium's Association of Petrochemicals Producers in Europe show that propylene production in Western Europe (EU15 plus Norway), for January to September 2011 inclusive was 11.2m tonnes - 184,000 tonnes less than the same period in 2010.
European monthly contracts for November have been agreed at €1,013/tonne ($1,388/tonne) FD (free delivered) NWE (Northwest Europe), down €55/tonne from October.
Spot prices have been trading well below contract levels since the summer. Polymer-grade spot prices in late October were at €840-850/tonne CIF (cost, insurance & freight) NWE, but are notional in an illiquid market with no more opportunities for export, as prices outside Europe are weaker.
Cracker margins are low as crude values remain high, although naphtha prices have softened over the past month. Spot margins - which briefly turned negative in October, for the first time since June 2009 - are trailing contract margins by as much as €432/tonne, the largest spread since December 2008.
The two main sources of propylene are as by-products from the steam cracking of liquid feedstocks such as naphtha (the predominant route in Europe and Asia), and from offgases produced in fluid catalytic cracking (FCC) units in refineries. The remainder is produced using on-purpose technologies such as propane dehydrogenation (PDH) and metathesis. Smaller amounts of propylene can be obtained from cracking propane and butane.
As demand for propylene continues to outpace that for ethylene - and more ethane crackers (which produce no propylene) are being built - on-purpose production is growing. Global consultancy CMAI predicts that by 2015 on-purpose propylene production will account for 18% of global supply- up from nearly 14% in 2011.
The main on-purpose process is PDH, but this is only economically viable in cases where low-cost liquefied petroleum gases (LPGs) are available. Much effort is also being put into increasing output from liquid steam crackers and FCC units.
US producer ExxonMobil and German engineering firm Lurgi have developed olefins interconversion technologies.
Methanol-to-olefins (MTO) technology - normally used to boost ethylene production - can increase the propylene yield to 45% of total output. Lurgi has also developed methanol-to-propylene (MTP) technology, which is in use in China, where methanol is converted from coal to make propylene and PP. There are three MTO demonstration plants in China with a total capacity of 1.56m tonnes/year. Proposed - and approved - MTO projects in China total more than 18m tonnes/year.
France's Total, working with with US-based UOP, has developed an olefin cracking process which takes the heavier olefins from the MTO unit and converts them into lighter olefins - in particular propylene.
CMAI estimates that demand from PP will grow by 29% in the 2010-2015 timeframe, while demand from all other derivatives will grow by 18%. Asia will be the primary driver of growth, with China representing more than 20% of total global demand for propylene by 2015. Investment is focused in Asia and the Middle East - projects in Europe will be confined to stretching existing capacities.
US analysts Bernstein Research forecast European naphtha cracker margins to decline in 2010, and pressure on margins could force more crackers to be idled or closed permanently. Andrew Liveris, CEO of Dow Chemical, said that high naphtha costs could idle 2m tonnes of cracker production in Europe and Asia. US-based Dow has identified 4m tonnes of vulnerable production, mostly in Europe.
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