Polyolefins still a growth story with Asia at the lead – Nexant

15 May 2012 10:34  [Source: ICIS news]

BRUSSELS (ICIS)--The ICIS World Polyolefins Conference opened on Tuesday with event chairman John Keeley highlighting the link between diverging global demand growth and feedstock availability.

The strong link between GDP and polyolefins demand growth was stressed by Alastair Hensman, energy and chemical consulting manager at consultancy firm Nexant.

Polyolefins is “still a growth story”, with Asia at the lead. China matters hugely in the world polyolefins market with its estimated economic growth of 7–8 %, but demand growth in Europe and the US will continue to be slow.

“In Asia, nobody dares shut down a cracker. Everyone is sitting there thinking 'I’m not making money but I will run the plant because there will be demand growth',” said Hensman.

Not all the demand growth in China is going to be an opportunity for others. China is expanding its own polyolefin production capacity, driven by actual demand growth in the region and a determination to limit imports.

“Although the Middle East is seeing growth, Asia has a very strong capacity growth. They are even getting into coal through a methanol-to-polyolefins route,” he said.

If the Middle East produces more crude oil, then there will be more ethane, but that is not the case and capacity expansion there is limited, he added.

The high value of crude oil is making producers more interested in alternative production routes, said Hensman.

Polyolefin pricing follows crude oil movements, with high density polyethylene (HDPE) pricing being a prime example.

“So it is interesting if you are a producer to find alternative routes to reduce your cost,” said Hensman.

Consumers have to accept that if crude oil prices are high, prices are going to be high, even if the market is weak.

Historically, Asia had the lowest prices and the US had the highest because there was less of a threat of imports from the Middle East.

Today, European and US prices have increased. However, Asian prices have stayed low, opening up interesting questions about arbitrage.

“If you had gone back 10 years, this would have opened up an arbitrage. But today people behave differently. You need to ask, why am I not buying polyolefins from Asia? There is a massive price difference between the regions, and all to producers’ advantage,” he said.

Global supply and demand balance is expected to be high on the agenda over the next two days at the ICIS World Polyolefins Conference, which is being held on 15–16 May in Brussels, Belgium. 

By: Cuckoo James
+44 (0) 208 652 3214

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