28 December 2011 15:50 [Source: ICIS news]
By John Richardson
PERTH (ICIS)--Conventional thinking would suggest that when you have a strong feedstock advantage, you should go ahead and build more petrochemical capacity on the assumption that growth will eventually be sufficient to absorb volumes.
Hence, several more green-field crackers would be announced in the ?xml:namespace>
To date, four new crackers have been announced – by Chevron Phillips Chemical, Dow Chemical, Sasol and Shell Chemicals.
“The start-up dates of new cracker projects might be pushed-back a bit, but I believe that all of them will happen,” he added.
A second industry observer disagreed. He predicted that only one or two grassroots facilities would go ahead, along with a few expansions of existing facilities, because of “great economic uncertainty”.
During on-the-record speeches and interviews, the GPCA delegates saw beyond this “great economic uncertainty” towards a period when the world would return to normal.
But in private, delegates seemed considerably more nervous and edgy about the future than during last year’s conference.
Most of the discussion was about the eurozone debt crisis and its implications for the global economy, including
“Without another huge round of government stimulus, Chinese growth would be badly affected by a fall in exports to its biggest export destination -
As much as 45% of polyethylene (PE) sold to
It is also important to note that these are global markets and so if
Another concern is that the
A return to normal economic conditions would create a tremendous opportunity for those with the feedstock advantage, said another senior executive, who works for a major Asian polyolefins player – again on the sidelines of the GPCA.
“There are very few new plants due on-stream over the next few years,” added the executive, who believes that the world’s economy will soon be back on track.
His views are in contrast to those of chemical analysts at global bank HSBC in a report released last month.
“The ‘Supercycle’ thesis for commodity chemicals – highly popular among investors in 2010, but less so in 2011 as reality has sunk in – has, in our opinion, always been centred on assumptions about demand growth rather than supply,” wrote the authors of the report.
“The current investor perception of the sector appears to be that, despite some near-term uncertainties linked to the macroeconomic environment, limited new capacity growth means that a ‘Supercycle’ environment is inevitable once macro fears subside.
“However, in order to reach the level of operating rates required for a margin ‘Supercycle’, the rate of demand growth must significantly outstrip the pace of supply additions.
“While the near-term outlook for supply growth remains favourable - we forecast a CAGR (compound average growth rate) of 2.9% over the 2011-15 period - demand growth would need to exceed supply by 150-200 basis points each year for the existing oversupply to be absorbed and a meaningful tightening of operating rates to occur.
“This already challenging task is complicated by a macro outlook that suggests demand contraction in the developed world in 2012 and a prolonged period of slower growth thereafter.”
HSBC predicted that developed world plastics demand was a full 15% below the 2007 level in 2011 - and would not fully recover until after 2015.
If HSBC is right, the timing, and perhaps even the entire future, of planned capacity expansions in the
Conventional thinking might, as a result, be turned on its head.
See John Richardson’s Asian Chemical Connections Blog
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