OUTLOOK '13: US ethylene momentum to carry on in 2013

26 December 2012 22:00  [Source: ICIS news]

US ethylene momentum to carry on in 2013HOUSTON (ICIS)--US olefins prices will end 2012 on a high note after rising unexpectedly in the last few weeks of the year amid a spree of unplanned outages.

The uptrend is likely to carry over into the new year as the US has at least two olefins plants with scheduled maintenance planned at the beginning of the month.

Among the expected outages are a 45-day stoppage at Huntsman’s 193,000 tonne/year Port Neches unit in Texas and a 50-day turnaround at Westlake’s 699,000 tonne/year Petro 2 cracker in Louisiana, both of which are scheduled to start in the first week of January.

The shutdown at Westlake, which was originally planned for the fourth quarter of 2012, includes an expansion that will raise capacity at the unit by 230m-240m lb/year (104,000-109,000 tonnes/year).

Westlake moved the turnaround to 2013 so it could optimise work at the site and minimise downtime, a spokesperson said.

The expansion is part of a new era of growth in the US industry that could result in a 35% surge in ethylene production in the next few years.

Two other US producers are expected to follow in Westlake's footsteps later in 2013 with capacity expansions of their own.

Williams is scheduled to shut down its 612,000 tonne/year Geismar cracker in Louisiana to add 600m lb/year (272,000 tonnes/year) of capacity by the third quarter, a 44% increase, while INEOS is planning to debottleneck its Chocolate Bayou complex in Texas, a move that will give the company 254m lb/year (115,000 tonnes/year) of extra ethylene capacity by the end of 2013.

The three expansions, combined with the restart of a 380,000 tonne/year Dow Chemical cracker in Louisiana at the end of December 2012, could bring nearly 2bn lb/year of new capacity to the US industry in 2013.

The figure represents only a 3.3% gain in overall capacity, but the increase, even if small in a 60bn lb/year industry, could help minimise or avoid some of the price volatility seen in 2012.

Spot ethylene for prompt delivery traded in a spread of nearly 37 cents/lb in 2012. The monomer rose from 57 cents/lb in early January to an all-time high of 76.125 cents/lb on 9 April. From there it dropped to 39.50 cents/lb on 13 June, only to regain strength again and close the year at around 60 cents/lb.

The wild swings were driven by a succession of supply imbalances, resulting from a busy turnaround season in 2012, during which at least 14 crackers were down for planned maintenance and some 40 unplanned outages were reported.

The US had only 26 days without an unscheduled outage in the first 10 months of the year, an industry consultant said.

Some US crackers are old and have been running hard for a few years, the consultant said, offering a potential explanation for the cause behind the excessive number of unplanned outages in 2012.

In addition, the 2012 turnaround season was more complex than usual because some of the cracker shutdowns involved conversions to light feedstocks on top of routine maintenance, the consultant added.

The operating rate in the US for 2012 is likely to have averaged 85%, the consultant estimated. That compares with nearly 92% in 2011, according to data from consulting group Jacobs Consulting.

Predicting how well the industry will run in 2013 cannot be done with certainty, but operating rates will likely jump back above 90% as fewer than 10 US cracker turnarounds are scheduled for the year.

Ethylene futures for 2013 are backwardated with December priced at a 16% discount from January, indicating that, at least for now, market sentiment is that ethylene prices will gradually soften next year.

($1 = €0.76)

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By: William Lemos
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