OUTLOOK ’12: Firm China MTBE imports to temper crude volatility

30 December 2011 06:17  [Source: ICIS news]

By Hedy Dong and Felicia Loo

SINGAPORE (ICIS)--The prices of methyl tertiary butyl ether (MTBE) in Asia are expected to be volatile in tandem with global crude futures in 2012, but the market will be supported by China’s stable MTBE imports as a result of booming demand from the domestic downstream chemical industry and the greater use of higher octane gasoline,  traders said.

Overall, the MTBE market in Asia will be balanced in terms of demand and supply, they added.

“It depends on the demand appetite from China. The growth of the economy will also play a part. The demand/supply dynamics will be balanced in Asia,” said a trader in Singapore, adding that gasoline consumption in southeast Asia is expected to be stable.

The apparent consumption of MTBE in China will reach 4.88m tonnes in 2011, up by 4.5% from 2010, according to C1 Energy, an ICIS service in China. (Apparent consumption is defined as production plus imports minus exports.)

For 2012, C1 Energy forecasts that the rising demand for MTBE in China will be supported by the downstream chemical industry and the greater use of higher octane gasoline. "But more production from new MTBE plants may meet rising demand [and] that means the import[s] will be stable with this year," a source from Sinopec’s refinery said.

Chinese MTBE imports are expected to be 600,000-700,000 tonnes in 2012, the same levels as estimated for 2011.

Separately, a consumption tax on naphtha blending in China will make the market more complex.

China had re-imposed a yuan (CNY) 1/litre (16 cents/litre) excise tax on naphtha from October this year, to ensure the gasoline blending sector is excluded in an incentive meant only for ethylene and aromatics producers. Naphtha producers incorporated the tax in their selling price from 1 October, while naphtha buyers provided proof that the material went to the production of ethylene and aromatics before getting rebates on the tax paid on purchases.

The gasoline blending cost will be higher than naphtha with this tax, making it difficult for blenders to make profits, some blenders in south and east China said. They added that blenders may reduce their gasoline blending and buy less MTBE. 

The gasoline demand will increase with more cars and this in turn will boost MTBE demand, said traders based in southern and eastern China.

The tax means higher naphtha prices for consumers that will use the petrochemical feedstock other than for ethylene and aromatics production. The gasoline blending sector has reduced its naphtha purchases and shifted to other blendstocks such as mixed aromatics, according to market sources.

About 3m tonnes of naphtha are used for gasoline blending in China each year. Naphtha and aromatics have the biggest shares of 30% each in China's gasoline blending sector, while MTBE has a 10% share, according to C1 Energy.

Chinese gasoline demand may stage a modest growth, in tandem with passenger car sales. China’s passenger car sales in November reached 1.34m units, up by 0.29% year on year, while its total passenger car sales in January-November increased by 5.93% to 13.1m units, according to the China Association of Automobile Manufacturers (CAAM).

Meanwhile, the country is likely to export around 60,000 tonnes of MTBE to Taiwan, South Korea and Singapore under processing and assembling trade, according to C1 Energy.

Last year, China imported 740,000 tonnes and exported 50,000 tonnes of MTBE. In 2009, Chinese MTBE imports were at 400,000 tonnes against exports of 60,000 tonnes, C1 Energy data showed.

China’s MTBE imports will remain strong but capped in view of increased domestic capacity and the fragile global economy that is seen hampering oil demand growth, traders said.

“There are small pockets of new MTBE plants in China and in other parts of Asia, there are new MTBE facilities. So supply wise, it will be at comfortable level,” said a trader in Singapore.

China’s Jingmen Petrochemical, a subsidiary of Sinopec, is planning to start up its 55,000 tonne/year MTBE unit at Jingmen in Hubei province in January 2012, raising the company’s total MTBE capacity to 110,000 tonnes/year when it starts operating the new unit.

Another Sinopec subsidiary, Qingdao Petrochemical, is expected to stop purchasing MTBE as it has started up its own 70,000 tonne/year MTBE plant at Qingdao, Shandong, in early December.  Qingdao Petrochemical runs a 5m tonne/year refinery and some downstream units at Qingdao.

Outside China, Taiwan’s Formosa Petrochemical Corp (FPCC) is embarking on a project to expand its MTBE capacity to 8,100 bbl/day from 4,500 bbl/day. FPCC operates a 190,000 tonne/year MTBE plant in Mailiao at present.

India’s energy and petrochemical major Reliance Industries is expected to export MTBE early next year after it commissioned a 144,000 tonne/year plant at Hazira in Gujarat recently, industry sources said. 

Meanwhile, China’s Panjing Heyun is planning to start up its 60,000 tonne/year butyl rubber plant in Dalian province in the middle of 2012 and will need more MTBE as feedstock, some industry sources said.

They added that this could support the demand for MTBE from the downstream chemical industry since the demand from the methyl methacrylate (MMA) players is expected to be weak next year.

The weak outlook for Asian MMA will hamper the demand for the MTBE feedstock.

The price outlook for Asian MMA remains unclear as weak downstream conditions are expected to persist into January next year. The key downstream polymethyl methacrylate (PMMA) market remains oversupplied despite production cuts and extended turnarounds by regional PMMA producers. The business conditions in other key derivate sectors remain stable-to-weak.

Additional reporting by Junie Lin

($1 = CNY6.32)

For more pricing intelligence, visit ICIS pricing
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Hedy Dong

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