OUTLOOK ‘13: Asia olefins outlook mixed, clouded by economic woes

26 December 2012 06:29  [Source: ICIS news]

By Helen Lee and Peh Soo Hwee

SINGAPORE (ICIS)--The outlook for Asian olefins prices is mixed in 2013 as prevailing tight supply on the back of reduced cracker operating rates in the region is balanced by worries that petrochemical demand may not improve in the uncertain global economic climate, market sources said.

Sentiment remains cautious amid concerns over the deadlock in talks to avert the US fiscal cliff crisis – steep tax increases and spending cuts set to take effect next January – that may tip the world’s largest economy into recession.

If this happens, this will have repercussions for Asia’s petrochemical industry, which provides the raw materials that go into manufacturing a wide range of finished goods such as textiles and toys that are eventually exported to markets in US and Europe.

The economic malaise plaguing the US and European economies for much of this year had already hurt demand for exports from China – the world’s second largest economy and the biggest global manufacturing hub.

Amid weak petrochemical demand and high feedstock costs, cracker operators in South Korea and Taiwan were prompted to implement operating rate cuts in December after ethylene margins based on feedstock naphtha in northeast Asia plunged into the red, diving $98/tonne (€74/tonne) to minus $68/tonne during the week ended 30 November.

This was the lowest levels in more than a year, according to ICIS data.

Burdened by high feedstock naphtha costs, the majority of the crackers in Japan are also operating at 80-85% this month, market sources said.

Ethylene margins had been hit by a 13% month-on-month fall in ethylene spot prices in late November, a rise in naphtha costs and a fall in co-product credits.

Margins have since improved in late December following a recovery in ethylene prices but producers remained cautious about the outlook.

Ethylene spot prices were at $1,250-1,300/tonne CFR (cost & freight) northeast Asia during the week ended 21 December. Propylene was assessed at $1,290-1,310/tonne CFR NE Asia in the same period.

“I think it might take some time for a turnaround from the bottom because there are no signs of market recovery,” a northeast Asia cracker operator said.

“Demand in China as well as Europe and North America economies have to improve first before the situation can change and I hope polymer demand will strengthen with the approaching Chinese New Year season,” he added. 

Some market players said olefins prices may increase moderately in January and February amid pre-buying interest ahead of the Chinese New Year festive season in early February.

In particular, a heavy cracker turnaround season in Europe in the first quarter of 2013 could attract ethylene molecules from the Middle East and Asia to head there.

Some buyers on the other hand, anticipate a lengthening in ethylene supply in 2013 because of a lighter cracker turnaround schedule in Asia next year and as the start up of new cracker capacities in China may curb ethylene imports to some extent.

Daqing Petrochemical’s 600,000 tonne/year naphtha cracker and Fushun Petrochemical’s 800,000 tonne/year ethylene plant came on stream in September-October 2012.

“2013 downstream markets are weak so we may have cracker turnarounds or adjust our cracker operating rates,” a Sinopec company official said, adding that the schedule is not firmed up yet.

If cracker cutbacks in Asia continue into the new year, it is expected to tighten propylene supply in northeast Asia amid the start-up of new derivative plants in the region, market sources said.

However, propylene prices in southeast Asia may remain under pressure because of new capacities coming on stream.

“If Pertamina successfully starts up its ROPP (residual catalytic cracking off-gas to propylene) unit, then buyers in southeast Asia may have some price advantage whereas northeast Asia is still tight due to strong demand from China,” said a polymer producer based in southeast Asia.

A company source from Indonesia’s state-owned Pertamina had earlier said that the company planned to start up its new 178,000 tonne/year propylene facility at Balongan in West Java in January 2013.

($1 = €0.76)

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

By: Helen Lee & Peh Soo Hwee
+65 6780 4327

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