Petrochemicals: more cracker cuts loom in Asia

04 June 2012 00:00  [Source: ICB]

Asia operators plan to reduce plant operations again as derivative markets weaken

More naphtha cracker cuts in Asia may surface as margins are under pressure from the recent sharp correction in regional olefins markets, industry sources said.

"Margins are negative so we have to cut production," said a source from South Korean producer Yeochun NCC (YNCC).


 Formosa has lowered operating rates at its Mailiao crackers

"If the other Korean cracker operators also cut their production, we might see some impact on the market, but the global economic situation is bad - especially the European political situation, which is risky," he added.

YNCC said in the week of May 21 that it planned to cut operating rates across its three naphtha crackers in Yeosu to 90% at the end of May because of squeezed margins.

The company was running the three crackers, which have a combined ethylene nameplate capacity of 1.9m tonnes/year, at full rates.

Market sources said that the last time YNCC had cut cracker operating rates was during the global financial crisis in late 2008 - an indication of the gravity of the current market situation.

"The Korean suppliers are usually the last to reduce their operating rates," said a Japanese olefins trader.

Other producers in the region have also announced cuts, notably Taiwan's Formosa Petrochemical Corp., which has trimmed the operating rate at its three naphtha crackers in Mailiao to 80% since mid-May, from 90% earlier in the month.

South Korea's SK Energy also reduced the operating rate at its 190,000 tonne/year naphtha cracker to 70% on May 20, from 85% earlier in the month.

Meanwhile in Indonesia, the country's sole cracker operator Chandra Asri has cut production at its 600,000 tonne/year naphtha cracker in Cilegon to 90% in May from 95% in April, company sources said.

Northeast Asian ethylene margins rose to above $200/tonne (€160/tonne) in early May, supported by the decline in feedstock naphtha prices, but this has been offset by the sharp fall in spot prices for ethylene and co-products propylene and butadiene (BD).

Ethylene and propylene spot prices were hovering near five-month lows in late May, but buyers said they would not be easily drawn to buying cargoes, given the uncertain outlook.

Olefins markets have come under pressure mainly because of the poor performance of key derivatives such as polyethylene (PE) and polypropylene (PP). Integrated producers in the region have been selling ethylene and propylene spot cargoes and keeping polymer plants running at reduced rates.

Prices for PE and PP have weakened in May amid poor domestic demand in China and worries over the global economy that have been heightened by the eurozone debt crisis, market sources said.

Thailand's Integrated Refinery Petrochemical Complex (IRPC) is on track to start up a new metathesis unit, which can produce around 100,000 tonnes/year of propylene, at the end of the third quarter of 2012, a company source confirmed.

IRPC currently buys propylene from the domestic market for its polypropylene (PP) production, and the new metathesis unit is expected to contribute to part of its feedstock requirements.

The company is also considering cutting operating rates at its 350,000 tonne/year naphtha cracker in Muang in June because of poor performance in the polyolefins markets, the source said.

"We are looking at reducing the cracker operating rate to 70% or lower, depending on the situation," the source said.

The plant is currently running at 95% of capacity, the source added.

By: Peh Soo Hwee
+65 6780 4359

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