FocusAsia olefins uptrend seen capped by demand concerns

20 July 2012 04:35  [Source: ICIS news]

By Peh Soo Hwee

SINGAPORE (ICIS)--Asian olefins prices have been rising for the past one month but further gains are expected to be capped by weak derivative demand and more supply as recent cracker outages in the region have ceased, market sources said on Friday.

Ethylene spot prices were assessed at $1,060-1,080/tonne (€858.60-874.80/tonne) CFR (cost and freight) northeast (NE) Asia last week while propylene was traded at $1,330-1,390/tonne CFR NE Asia during the same period, ICIS data showed.

This is an increase of 17.5% for ethylene compared with prices a month earlier and also represents a 9.7% gain for propylene over the same period.

“Propylene prices may not go up much further because supply is going to lengthen and demand from PP (polypropylene) to acrylonitrile is still not so good,” a Japanese olefins trader said.

The recent disappointing economic data from China – the world’s second-largest economy – has elevated concerns about the repercussions on the petrochemical industry, which provides the raw materials for a wide range of end-products ranging from plastics to textiles and toys.

China’s GDP grew by 7.6% in the second quarter, the slowest since the second quarter of 2009 when the global economy was hit by a financial crisis, according to official data.

The 7.6% growth was also the first time the country’s quarterly GDP fell below 8.0% in the past three years, according to data from the National Bureau of Statistic (NBS).

Ethylene and propylene spot prices in northeast Asia had been on the rise following the 20 June power outage at Taiwanese producer Formosa Petrochemical Corp’s (FPCC) Mailiao complex.

The outage forced about 95% of the plants at the complex – including the company’s naphtha crackers – to be shut as well as downstream units belonging to various firms within the Formosa group.

However, FPCC’s 1.2m tonne/year No 3 cracker resumed operations on 6 July while the 1.03m tonne/year No 2 cracker was back up and running on 30 June. Both plants are currently operating at full rates.

FPCC also runs a 700,000 tonne/year No 1 cracker that is undergoing scheduled maintenance from 20 June to 5 August.

In addition, market sentiment was further boosted by an unplanned shutdown at CPC Corp’s 385,000 tonne/year No 4 cracker in Linyuan, Taiwan, from 2-10 July to address technical issues, which saw the producer coming into the spot market to buy ethylene cargoes.

However, end-users said the recent spike in olefins prices was increasingly taking a toll on derivative markets.

“The Asia market is about to change very soon because derivative products simply cannot reflect the C2 (ethylene) price increase to their selling prices,” said one ethylene buyer.

Market participants now expect supply to lengthen due to the start up of new plants in the region.

CPC is expected to start up its new residual fluid catalytic cracker (RFCC) at Dalin, Taiwan, in mid-August. The RFCC can produce 400,000-450,000 tonnes/year of propylene and the priority would be to allocate the material to domestic customers, the producer said.

Propylene exports will only be considered after local demand is met, the company source added.

“Kaohsiung is a net import area so definitely imports will shrink after CPC starts up its RFCC,” said another domestic producer in Taiwan.

Taiwan imported around 419,244 tonnes of propylene in 2011, up from 343,379 tonnes in 2010.

Some naphtha cracker operators in the region have also raised operating rates this month due to improved margins, which have contributed to market expectations of a lengthening in supply that could potentially exert downward pressure on spot prices.

Among the producers that have raised rates this month or are considering increasing output include Thailand’s Siam Cement Group, Malaysia’s Titan Chemicals and South Korea’s SK Energy.

Ethylene margins based on naphtha feed in northeast Asia rose by $15/tonne to $226/tonne while margins in southeast Asia were also up $43/tonne at $195/tonne during the week ended 13 July on the back of gains in ethylene and co-product prices, according to ICIS data.

($1 = €0.81)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

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By: Peh Soo Hwee
+65 6780 4359

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