Full steam ahead for China aromatics in 2012

23 January 2012 00:00  [Source: ICB]

Healthy domestic demand growth will be complemented by a swathe of new projects coming on stream in 2012

China will undoubtedly be the main focus of the Asian aromatics market as many downstream projects will be launched in the country in 2012. The poor economy in the US and Europe in 2011 is likely to limit opportunities to export Asian goods to the two regions.

 Full steam ahead

 Copyright: RexFeatures

Asia is expected to face high inventory pressures, especially for benzene, and prices are likely to drop. As a result, the gap between the import prices and Chinese domestic prices will narrow, possibly creating an arbitrage window in 2012.

The domestic supply of toluene in China will be boosted by a round of expansions in 2012 with new capacity of 1.7m tonnes/year includingPetroChina subsidiaries Jilin Petrochemical, Daqing Petrochemical, Fushun Petrochemical, Sichuan Pengzhou Petrochemical, plus Dragon Aromatics (Xiamen).

In addition, three producers - Shanghai-headquartered Huachen Energy, and Sinopec subsidiaries Shanghai Gaoqiao and Jiujiang - postponed plant expansions to the first quarter of 2012 from the end of 2011.

However, there is no guarantee the plants will start on schedule or be able to reach full production rates immediately.

In addition, Dragon Aromatics (Xiamen) and PetroChina Sichuan Petrochemical have integrated paraxylene (PX) plants. This means that toluene disproportionation (TDP) demand will increase with the start-up at the aromatics plants.

For import supply, importers incurred losses in the second half of 2011 because they were holding on to contract cargoes. The importers subsequently cancelled their import contracts to procure from the domestic market instead.

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UPCOMING EXPANSIONS
It is unlikely that China's import volumes will increase in 2012 to levels seen in 2009 or 2010, because the upcoming expansions will increase domestic supply, reducing the need for imports. The poor macroeconomic climate has also made players more conservative, leading them to procure cargoes from the domestic market rather than imports.

However, purchasing yuan-denominated product is more costly as the yuan is appreciating against the US dollar.

In addition, Japan's export market is likely to experience a slow recovery in 2012 because of the year-long, post-earthquake recovery. As a result, US goods will still be favored by importers and traders and remain a main channel of spot market supply.

Domestic demand for PX is expected to be strong as some purified terephthalic acid (PTA) units are scheduled to be expanded in 2012. PTA is a downstream product of PX.

The domestic demand for TDP is also expected to be firm in 2012, with the addition of new capacities by Dragon Aromatics and PetroChina Sichuan Petrochemical.

China's TDP demand is likely to increase significantly, as long as there are no issues in bringing the new plants on stream.

However, toluene demand from the solvent market in China is not expected to change significantly in 2012 because of the ongoing control policy in the nation's real estate markets, which will affect the paints and coatings industry. Prevailing inflation pressures will make it difficult to ease tight monetary policies in 2012, and some small-to-medium enterprises still face financial pressures.

In addition, using benzene to make solvents is becoming increasingly unpopular as this does not meet stricter environmental requirements. As a result, the solvent sector will be unable to maintain its toluene demand at a growth rate in line with the forecasted domestic GDP growth rate for 2012.

Oil prices are forecasted to rise in the short-to-medium term, but the supply of domestic oil products remains short. As a result, the demand for gasoline blending for captive use at the refineries is expected to be stable or increase. The overall domestic supply in 2012 will be higher than in 2011, but the liquidity in the spot market will be limited.

In 2011, demand for gasoline blending from toluene was a market highlight. In the long-term, international crude oil prices are expected to continue rising in 2012.

Chinese oil product supply is still short, so demand for gasoline blending in refineries is expected to remain stable this year. On the supply side, many aromatic plants are scheduled to start up in 2012, including those by Huachen Energy; Shanghai Gaoqiao; Jiujiang; Jilin Petrochemical; Daqing Petrochemical; PetroChina Fushun Petrochemical; Sichuan Pengzhou Petrochemical; and Dragon Aromatics (Xiamen).

Domestic toluene capacity is expected to expand by 1.7m tonnes/year. With this, China's imports are expected to be lower than the levels seen in 20092010.

INTEGRATED PX PLANTS
However, supply is likely to increase slightly because most of the output from the refinery expansions in East China are for captive use. Imported toluene will still be one of the main spot-market channels.

The expansions by PetroChina Sichuan Petrochemical and Dragon Aromatics (Xiamen) are integrated PX plants, which are expected to increase demand for TDP. Jilin Petrochemical plans to start operating its 10m tonne/year oil refinery, with most of the output used for gasoline blending.

If spot toluene demand from the gasoline-blending sector weakens as a result of external factors in 2012, gasoline-blending demand from the refineries will have provided a sufficient level of consumption already.

With the drive in toluene demand from TDP and gasoline-blending sectors, toluene growth in 2012 is expected to be healthy.

Ariel Chen contributed to the article


By: Dolly Wu
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