30 April 2012 00:00 [Source: ICB]
Propylene is mainly used to make polypropylene (PP), which accounts for nearly two-thirds of global propylene consumption. Other outlets include acrylonitrile (ACN), propylene oxide (PO), a number of alcohols, cumene and acrylic acid.
Naphtha cracker rate cuts across Asia to 80-90% since the fourth quarter of 2011 have resulted in a corresponding decrease in propylene supply in the region. This has been compounded by unplanned shutdowns at crackers and propylene units in Japan, South Korea, and Taiwan so far this year.
As such, the market has generally climbed upward, particularly in March to April - a period that coincides with turnarounds at key crackers in Japan and South Korea.
Buying momentum for spot cargoes, particularly in the leading China market, has slowed in recent weeks as prevailing high feedstock propylene costs have taken a toll on key derivatives ranging from PP to PO.
PP and PO producers in China are either running their plants at reduced rates or have shut down their facilities as they are unable to pass on the spike in feedstock costs to their customers.
Spot propylene prices soared to a fresh seven-month high of $1,500-1,560/tonne CFR (cost & freight) NE (northeast) Asia by mid-April, underpinned by limited supply amid recent cracker outages such as the unplanned shutdown at Taiwanese producer CPC's 500,000 tonne/year No. 5 cracker in Kaohsiung from April 6-15 as a result of a pipeline leak that led to an explosion at the site.
Japan-based producer Showa Denko is also expected to keep its 695,000 tonne/year cracker in Oita off line until the end of May because of unspecified problems. The company had shut the cracker in early March for furnace repairs and maintenance, and it was slated to resume operations by the end of March.
The unabated surge in the propylene market, however, has raised concerns that prices may peak soon because of a visible slowdown in demand.
Propylene comes in three grades: polymer grade (99.5% minimum purity), chemical grade (93-94% minimum purity), and refinery grade (60-70% purity).
Propylene is made as a by-product of steam cracking of liquid feedstocks such as naphtha and liquefied petroleum gas (LPG), as well as off-gases produced in fluid catalytic cracking (FCC) units in refineries. It is also made via on-purpose technologies such as propane dehydrogenation (PDH) and metathesis.
The direction of the propylene spot market will continue to depend on supply-demand fundamentals in the region.
The impending start-up of Taiwan-based producer CPC's residual fluid catalytic cracker (RFCC) in Dalin, which can produce 400,000-450,000 tonnes/year of propylene, in late June is expected to cut import demand into Taiwan in the second half of the year.
The tight supply in northeast Asia is also expected to ease in the second half of the year because of a lighter cracker turnaround schedule in 2012 and as propylene facilities that had been affected by the March 11, 2011 tsunami and earthquake in Japan resume operations this year.
On the demand side, the global macroeconomic outlook and signs of a slowdown in the key China economy this year are seen to moderate the propylene demand growth in Asia.
Propylene demand in the region is expected to continue to grow at a modest pace of 4-5% this year.
The growth will continue to be led by China amid fresh demand from derivative plant expansions in sectors ranging from phenol to PO and acrylic acid.
China imported around 1.76m tonnes of propylene in 2011, and this is expected to rise to at least around 1.8m tonnes in 2012.
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