Asia Polyolefins: “Bloodbath” Postponed

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Source of Picture : purchasing.com

In his own words, here is how one contact describes the current situation with a couple of extra points added by yours truly (with links)

We’ve seen arbitrage close from Europe on polyolefins with no new business since April-May. Some material was delivered in June but this was merely May deals.

“The recent rise in European monomer prices (about Euros85/tonne for C3s and Euros$80/tonne for propylene) has helped claw back margins at the cracker level. In fact if you now look at the propylene-to-PP spread it’s the worst it has been for the past two years.

“Clearly, these increases in contract monomer prices have put paid to any further arbitrage for the time being.”

“I think the recent ethylene and propylene prices rises have been driven mainly by short covering from traders and with energy prices coming off I can’t see current levels being sustained.

“One of the major reasons is that the non-PP consumers can’t continue to pay the high monomer prices and so will have to cut back on operating rates – if they haven’t already (for example, in the case of acrylonitrile)

“In the first half, the European industry was helped by pretty good operating rate discipline, but in the US plants have been running pretty hard.

“The European plants were also constrained from running any harder because spot monomer prices made this economic if they had insufficient flexibility in contract arrangements to up their operating rates.

“The rise in China PE imports is probably also reflected in PP which is not what the industry expected – we had anticipated import growth to be flat this year.

“The reason is delays to new capacity and re-stocking. We haven’t seen a new PE plant in China for over a year with the next ond due on stream in July-August – Fujian.

There has also been substantial China petrochemical turnaround programme in April-June as our re-launched World Ethylene Plant Report illustrates.

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In addition, deep cutbacks were made earlier in the year for market reasons.

“I think the reasons for the project delays have been that EPC (engineering, procurement and construction) resources have been severely overstretched.

“You just couldn’t get enough of these experienced project managers to oversee the big investments – and also cost constraints were a big issue because of the high prices of both labour and raw materials.

“You faced a choice of, say, focusing on the cracker and certain derivatives at the expense of lesser derivatives which have meant some parts of some projects have been delayed.

“The delays are not the result of market factors.

“When you think about the China market, if it grows at 5% a year that means there is a need for one new world scale plant every 12 months – which hasn’t transpired. If it grows at 10% you need three new world scale plants.

“And despite the global economic problems the market is still growing.

“Another factor behind tight PP in China has been small plants have been off-line because poor refinery economics have meant that the propylene hasn’t been available. There is a total of about 500,000 tonne/year of these smaller, refinery-linked plants in China.

“The refineries have been running at low rates because of weak fuels demand and rising oil prices. Restrictions are still in place which prevent refiners from fully passing on the costs of more expensive crude.

“It’s clear, though, that when all this new capacity starts up there will be a blood bath.

“The fall in crude by $10/bbl is clearly also going to have an effect and buying patterns will change as everyone holds back rather than brings forward purchases.”

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