Asian chemical profile: Ethylene

30 January 2012 00:00  [Source: ICB]

Asia Ethylene plants

USES

Ethylene is used mainly to make polyethylene (PE), which accounts for about 60% of world demand. Other major uses are ethylene oxide (EO), ethylene glycol (EG), polyvinyl chloride (PVC) and polystyrene (PS).

SUPPLY/DEMAND

Cracker rate cuts across Asia to 80-90% since the fourth quarter of 2011 - excluding China and South Korea - have limited supply in the region.

However, this is balanced by competitively priced ethylene from Middle Eastern countries such as Iran.

The Middle East's advantage of much lower production costs than cracking naphtha in Asia could limit the price upside for the Asia ethylene market, industry sources said.

Both uncertainty over the outlook for ethylene derivatives and the health of the global economy are also weighing on sentiment and purchasing decisions.

End-users in downstream sectors ranging from PE to PVC prefer to minimize their purchases and keep low inventories. This has kept spot liquidity thin in Asia as most end-users are reliant on term or domestic cargoes.

A number of players expect some support for the ethylene market in March-April when several turnarounds are taking place.

Among the key regional crackers that will be shut for maintenance are Honam Petrochemical and Yeochun NCC in Yeosu, South Korea, and Tosoh in Yokkaichi, Japan.

PRICES

Cracker rate cuts helped prices to stay above $1,100/tonne (€848/tonne) CFR (cost & freight) NE Asia (Northeast Asia) in December. Spot prices subsequently rose to $1,130-1,180/tonne CFR NE Asia by mid-January, underpinned by prevailing high naphtha prices and limited supply.

Some traders are now seeking sales targets of more than $1,200/tonne CFR NE Asia for February arrival, but gains could be limited in the near term by the uncertain outlook.

Pricing remains sensitive to the supply situation within Asia and the Middle East.

TECHNOLOGY

Ethylene is produced commercially by the steam cracking of a wide range of hydrocarbon feedstocks. In Asia and Europe, ethylene is obtained mainly from cracking naphtha, gasoil and condensates, with the coproduction of propylene and C4 olefins.

An advanced catalytic olefins (ACO) technology that produces ethylene, propylene and other olefins from naphtha at a lower temperature of 700˚C (1,292˚F) has been developed by Korea's SK Energy and US engineering contractor KBR. Norway's Norsk Hydro and US-based UOP have developed methanol-to-olefins (MTO) technology. There is a lot of interest from China to invest in this route.

OUTLOOK

Market direction will continue to hinge on supply-demand fundamentals. The global macroeconomic outlook and China's future fiscal policies - such as the monetary tightening measures introduced in 2011 - will continue to weigh on demand.

Asia Ethylene spot prices

Ethylene demand in Asia is expected to continue to grow at a modest pace of 3-4% this year, barring any unforeseen deterioration in global economic conditions.

Growth will continue to be led by China, amid fresh demand from derivative plant expansions in sectors such as styrene monomer (SM) and EO.

The next wave of cracker expansions in the country is only expected in 2013-2015.

China imported more than 950,000 tonnes of ethylene in 2011, according to official data, and could exceed this level in 2012, market sources said.


By: Elaine Burridge
+44 20 8652 3214



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