Asian Chemical Connections

Source of picture: www.americanprogress.org

By John Richardson

China's high-density polyethylene (HDPE) demand is expected to grow by 38% to around 7m tonnes forecasts CBI China, the Shanghai-based commodity information service.

Linear-low density (LLDPE) is expected to rise by 30% to 4.6m tonnes and low-density polyethylene (LDPE) will increase by 20% to 3.4m tonnes, adds CBI.

Polypropylene (PP) demand is expected to 24% to 13m tonnes, the company also predicts.

"This would be all-time high level of PE growth," said an Singapore-based polyolefins trader.

Booming domestic demand and a decline in recycling appear to be the major drivers of this extroardinary growth.

Can it continue? Perhaps, yes, as speculation grows that the Yuan will be revalued - leading to more hot money pouring into the economy

The Thai Supreme Court's decision to uphold a September injunction halting development of $12bn of petrochemical and power projects could affect the on-schedule start-up of capacities of a large amount of petrochemicals capacity.

Note the word could because, despite the court ruling supporting claims by environmentalists about the impact of pollution at the site, PTT claims that most of its 25 petrochemicals projects will be unaffected by the verdict. The reason it gives is that the projects were granted environmental clearance before 2007 - when constitutional changes altered health and environmental rules.

Further - media reports say that former prime minister Anand Panyarachun will review the court ruling and make recommendations in the first quarter of next year.

In all, according to the reports, only 11 out of 76 projects at the site have been given the go-ahead by The Supreme Court.

The petchem start-ups that might be affected are as follows:

*PTT Polyethylene's 1m tonne/year ethane gas cracker, which was due onstream by the end of this year, according to a Thai industry contact who spoke to this blog. Downstream of the cracker will be 400,000 tonne/year of linear-low density polyethylene (LLDPE), 300,000 tonne/year of low-density polyethylene (LDPE) and 400,000 tonne/year of high-density polyethylene (HDPE), according to ICIS Plants & Projects

*The new Siam Cement/Dow Chemical complex centred on a cracker that will produce 900,000 tonne/year of ethylene and 450,000 tonne/year of propylene (the cracker will also produce 200,000 tonne/year of benzene). Also at the site will be a big new metathesis unit downstream of which will be a PP unit (currently checking the capacity). In addition, there will be a propylene oxide (PO) unit with a capacity of 390,000 tonne/year using Dow's proprietary hydrogen peroxide route to PO. This will be the first plant of its kind in the world and will not produce any styrene co-product. Start-up of the cracker, metathesis and PP units is due in Q2 next year and the PO unit in 2011, says ICIS Plants & Projects

*The PTT and LyondellBassel joint venture, HMC Polymer, which comprises a 310,000 tonne/year propane dehydrogenation (PDH) unit and a 300,000 tonne/year polypropylene (PP) plant. This plant had been due to start-up by August this year, the blog was told.

*The PTT/Asahi Kasei Chemicals joint-venture 250,000 tonne/year acrylonitrile project, due on-stream in Q4 next year, according to ICIS Plants & Projects. This will involve Asahi Kasei's propane route to PP. This would be the first commercial plant in the world to use propane rather than propylene as feedstock

News reports list chlor-alkali and vnyl chloride monomer (VCM) projects by Vinythai and a polyvinyl chloride (PVC) project by Thail Plastic & Chemicals as also being delayed. We are checking the details.  

According to The Nation newspaper, these are the 11 projects which were given permission to continue by the Supreme Court:

. Clean energy and product quality enhancement/Rayong Refinery
2. Gas recycling enhancement/HMC Polymers
3. Clean energy, oil vapour controlling unit installation/Star Petroleum Refining
4. Oil vapour controlling unit installation/PTT Aromatics and Refining
5. Air pollution improvement/Indorama Petroleum
6. Wastewater treatment improvement/PTT
7. Chlorine vaporiser and wet scrubber installation/Aditya Berla Chemicals (Thailand)
8. Tank relocation/Map t Tank Terminal
9. LPG/Brutene Depot-Wharf/PTT Chemical
10. Loading Arm Installation/Star Petroleum Refining
11. Petrochemical Depot-Wharf/Map Ta Phut Tank Terminal

Is history about to repeat itself?

Source of picture: www.vietbao.vn

The last year for polyolefins has been a bit like the wonderful 1980s and early 1990s for genuine football fans - when the often-repeated phrase of Manchester Utd supporters was "next year, definitely" when they were talking about their prospects for winning the then First Division Championship (just replace "next year with "next month").

Sadly, of course, the rest is bitter and painful history when it comes to "Utd".

The question now, after a year of constant project delays and problems with output from existing production, is whether the same will soon apply to polyethylene (PE) and polypropylene (PP) as oversupply crashes the market in 2010.

No matter what the demand outlook - and we'll look at demand later this week - the on-paper increases are just too big to prevent major market disruptions.

"Practically every month this year we've seen buyers retreating from the market expecting a flood of supply that simply hasn't happened," said a Shanghai-based source with a leading Asian polyolefin producer.

The most recent example was the steep fall in pricing just before the October holidays - by some estimates as much as $200/tonne - on false anticipation of stabilised production at PetroRabigh in the Middle East and at the Fujian and Dushanzi complexes in China.

After the October break prices bounced back.

But surely some time in the New Year all three of these new plants, which have been hit by technical problems, will reach 100% or thereabouts (whatever rates the market - or perhaps in the case of the Middle East unbeatable economics and in the case of China government policy - determines).

China is due to increase its high-density polyethylene (HDPE) capacity by 45% next year, linear-low density PE (LLDPE) by 35% (there are no new low-density PE plants) and PP by more than 30%, according to CBI China.

How quickly these further new volumes are introduced into the market will again, though, depend on the extent of technical problems that have plagued the start-up of ever-bigger and more complex plants. The shortage of experienced engineers has made the process more problematic.

A key measure will be Sinopec inventory levels as it contends with this potential flood of new supply.

So far this year it has apparently controlled inventories exceptionally well after the painful experience of late 2008.

Money to be made, or saved, again?.....

Source of picture: www.evworld.com

After last week's estimates, a big producer (who wishes to remain anonymous) has given us his forecasts for the strength of 2009 growth in demand for polyolefins in China - see full details in the article below.

Interestingly, he saw the dip in recycling as a big factor in this year's extraordinary recovery. 

We all know about the strength of China's economic rebound - sustainable or otherwise - but it could be that keeping a much-closer track on the recycling industry will also be a key factor in 2010.

With the delta between recycled and virgin material recently close to the minimum $400/tonne and if this trend continues, it will be interesting to see whether next year sees some reverse substitution.

A lot will depend on government regulations that have made it harder to ship scrap to China, and how many traders are prepared to take the plunge again. As long as there is a danger of a sharp correction in crude, trading in scrap could remain too-risky a business for many. In Q4 last year, a lot of the traders in recycled plastic went bust during the big oil-price correction.

A lot will, of course, also depend on the outlook for new virgin-resin supply - which we covered earlier today.

By John Richardson

China's polyethylene (PE) and polypropylene (PP) virgin resin demand will rise by 20-35% in 2009 over last year on a lack of recycled material, strong domestic demand and speculation, estimates a leading exporter to China.

High-density polyethylene (HDPE) demand will grow by 35% to around 7m tonnes, linear-low density polyethylene (LLDPE) by 19-20% to 4.5m tonnes and low-density polyethylene (LDPE) by approximately 20% to 3.3m tonnes, said the exporter

PP demand would grow by 20% to 12m, he added.

This follows either dips in demand during 2008 or modest increases, depending on which grade of polyolefin. LDPE fell by 7% and PP by 1% with LDPE rising by 3%, he said.

"A factor behind the strong recovery is the lack of availability of scrap material, forcing converters to switch back to using virgin product," said a Shanghai-based markets observer.

A drop exports of finished goods - delivered wrapped in plastic film which is shipped back to China for recycling - was behind the reduced availability, he added.

"Some traders who had dealt in scrap have also switched to virgin resin, boosting the amount of trading activity in new material."

Many traders in recycled material also went bust in Q4 last year when scrap prices fell below  the cost of virgin resin - placing further strain on the distribution network.

A further factor has been tougher government regulations restricting scrap imports on environmental reasons.

Virgin resin prices had also remained too low to justify converters using scrap material for most of this year, said a Shanghai-based source with a major polyolefin producer.

"In September, though, the delta or gap between recycled and virgin material - which has to be a minimum of $400/tonne to make recycling economic - was almost reached," he continued.

"This was the result of very tight supply of virgin product and the cost-push from higher crude oil."

Domestic polyolefin demand had surged on huge government economic stimulus, including a rise in bank lending, he said.

"This has led to a steep rise in automobile and real-estate sales with the resulting rise in property prices triggering a construction boom."

Government vouchers providing discounts of the price of white goods such as washing machines and refrigerators were also behind the recovery in polyolefins, he said.

The big rise in bank lending had also fuelled speculation, he added.

"Non-traditional traders entered the market who only wanted to get their hands on polyolefins in order to use the 90 days' credit for something else."

They would take the credit and use it to speculate on say equities. Sometimes they made such big profits out of the stock market that they were willing to sell PE and PP at a loss."

This is trend apparent across other chemicals and polymers, adding to price volatility.

A real head scratcher......

Source of picture: www/http://blogs.miaminewtimes.com

By John Richardson

Confused? Sorry, but so far we cannot be of much help bringing any precision to what the implications of Thailand's Supreme Court ruling will mean for the timing of petrochemical start-ups.

If you remember, last Friday we wrote about how the Supreme Court had backed the verdict of a lower court which had halted development of $12bn of petrochemical and power projects at the Map Ta Phut site (or should it be Mab Ta Phut?).

Note the word could because, despite the court ruling supporting claims by environmentalists about the impact of pollution at the site, PTT claimed that most of its 25 petrochemicals projects would be unaffected by the verdict.

The reason it gave was that the projects were granted environmental clearance before 2007 - when constitutional changes altered health and environmental rules.

Media reports said that former prime minister Anand Panyarachun would review the court ruling and make recommendations in the first quarter of next year.

That seemed clear as watered-down mud can be.

But then later the same day - last Friday again - PTT provided us with a list of 65 projects formally under suspension.

These include more projects than we had earlier listed - for example, bisphenol-A (BPA),  and polycarbonate (PC) expansions by PTT and Bayer respectively and polyvinyl chloride (PVC) and vinyl chloride monomer (VCM) expansions by Thai Plastic and Chemicals.

What remained unanswered was whether progress on the Siam Cement/Dow Chemical complex had been halted.

The complex includes 900,000 tonne/year of ethylene and 450,000 tonne/year of propylene (the cracker will also produce 200,000 tonne/year of benzene).

Also at the site will be a big new metathesis unit downstream of which will be a polypropylene (PP) unit (currently checking the capacity).

In addition, there will be a propylene oxide (PO) unit with a capacity of 390,000 tonne/year using Dow's proprietary hydrogen peroxide route to PO. This will be the first plant of its kind in the world and will not produce any styrene co-product. Start-up of the cracker, metathesis and PP units is due in Q2 next year and the PO unit in 2011, says ICIS Plants & Projects.

So we asked Dow to put the record straight.

Sadly, this was their statement today: "We are currently assessing the impact of the Court's decision. We are in full compliance with existing regulatory requirements and remain highly committed to ensuring that all of our projects fully comply with government regulations."

Perhaps nobody knows, in which case I am sure everyone would welcome a great deal more clarity.

By Malini Hariharan

I have been trying to get some clarity on what is happening at Map Ta Phut and what companies are planning to do.

Construction activity has not yet stopped despite the Supreme Court ruling last week which suspended 65 projects, says a PTT source. The government has yet to issue a notice to the companies. So it looks like prime minister Abhisit Vejjajiva has not acted on his plan to inform companies about the court order.

The situation is complicated. Most of the projects have received EIA approval and complied with all existing rules and regulations. Article 67 of the constitution asks for a health impact assessment (HIA) study to be evaluated by an independent body but that body has yet to be formed. A government panel, led by former Thai prime minister Anand Panyarachun, has been given the task of drafting new regulations and set up an independent body. The panel is now trying to accelerate the process and is likely to complete its task by the beginning of next year.

PTT's biggest concern is its No6 gas separation project which would provide feedstock to PTT Chem's new cracker. The cracker is not on the list of affected projects and can start at the end of the year. PTT Chem's plan is to carry out a turnaround at an existing cracker to divert feedstock to the new plant. PTT is also working on a plan to supply ethane from its No2 and No3 gas recovery plants where the company is due to complete a modification project by the end of the year. This project is not the list of 65 projects.

But the new cracker is unlikely to run at 100% until the No6 gas separation plant is commissioned.

PTT is also busy working out a strategy to ensure commissioning of this project in Q1 2010. One alternative being evaluated is asking the Central Administrative Court for a waiver as the project had already received EIA approval. This appeal could well be rejected as HIA is now needed. So PTT has also started preparing a HIA report which can be put up for approval once an independent body has been set up.

I was also told that another alternative under preliminary evaluation by PTT and Siam Cement is suing the government agency responsible for sanctioning their projects. "That is because the companies have done everything to comply with the rules; they have not done anything wrong," says the source.

By Malini Hariharan

After sorting out 2009 with a huge stimulus package the Chinese government is busy ensuring that there will be no slowdown next year.

A number of measures have been announced to sustain growth in the domestic market. Subsidies on sales on home appliances in rural areas are being extended.

The auto sector will continue to be supported - tax cuts that were due to end in December will be extended. Subsidies are being expanded for purchases of alternative fuel vehicles, purchases in rural areas and for consumers trading in old cars.

Does this mean even higher auto sales in the coming months?

Pic source: China Digital Times
Sales and production crossed the one million mark in November. Sales of cars, sports-utility vehicles and minivans rose to 1.04m while total vehicle sales touched 1.34m, up 96% from the previous year.

A comparison with November 2008 is perhaps not very relevant, as the Chinese government had not unveiled its stimulus package or the auto subsidy program at that time. But both sales and production last month were higher than October which suggests that the subsidy program is still a big draw.

The Secretary General of the China Passenger Car Association says that 2009 will be an 'unprecedented year in any country's auto industry'. The Association has projected total vehicle sales to cross 13m in 2009, up from 9.38m in 2008.

More buying of junk in H1 next year that nobody really needs?

Source: www.blogcleveland.com

By John Richardson

TWO theories about growth in China next year revolve around either an appreciation or devaluation of the Yuan.

The appreciation theory is far more widespread as it assumes no global double-dip economic recession.

It's assumed that by mid-2010 inflationary pressures will be build to the point where fiscal tightening will be needed, through, for instance, a cut in new loans and a rise in interest rates.

Part of this tightening would also include a long-awaited appreciation of the Yuan from around 6.8 to the US dollar, where it is at the moment, to 4.8.

Until and if this happens we could continue to see hot money pouring into and around China's economy as everyone tries to maximise Yuan revenue ahead any appreciation.

Weird and wonderful speculation
This has led to all sorts of weird and wonderful examples of speculation this year, including in chemicals markets.

My very able colleagues at CBI tell me, for example, that cargoes are sometimes being bought for the sake of the credit that is then used to punt in another commodity - for instance, equities.

There was one case of an ethylene dichloride (EDC) shipment that was sold at below raw material costs because the trader had used his credit to make a fortune from speculating elsewhere.

More such speculation will happen in H1 next year if the motive to gamble in order to make a currency gain remains high, particularly if economic policy stays broadly on the same expansionary track.

Yesterday, the State Council announced that economic policy would stay mainly unchanged for the time being because of a continued focus on boosting domestic consumption.

Some new pro-consumption measures are to be introduced, such as increasing cash-for-clunker car rebates.

Trying to let the air out gently
But two measures were also announced yesterday that might slightly deflate very bubbly auto and housing markets. As we reported yesterday, auto sales in November increased by 96% year-on-year.

The air-sucking steps are:

*The purchase tax on cars with engine sizes of 1.6 litres or less will be raised to 7.5 percent from 5 percent, though that is still lower than the 10 percent tax rate for most other cars

*Individuals must own their homes for five years to be eligible for sales tax exemption, up from the previous minimum of two years. In July, the China Banking Regulatory Commission decided to tighten mortgage conditions for second-time homeowners and big banks announced that they would start to offer discounts on mortgages only to selected qualified applicants

Government policy makers have a poor record of implementing the right housing policies at the right time, says Rosealea Yao of the Beijing-based online economics research publication, The China Economic Quarterly (CEQ).

The reason is that data on the property market can be misleading.

For example, there's recent evidence that stocks of unsold homes are increasing in several local markets, such as Beijing, Shenzhen and Hangzhou, whereas year-on-year nationwide sales accelerated by 48% in October.

A heavy-handed approach in 2007, involving interest rate rises and a reduction in credit to developers, caused the last collapse in China's property markets.

So the point she makes that if further measures are needed to cool the housing market and the overall economy down from mid-2010 - which the CEQ believes will be the case - the central government needs to tread very carefully.

The dilemma for China is that while a healthy construction sector is crucial for the economy, so is making sure that property prices don't increase out of the range of average earners.

Expect even more chemicals volatility
It seems very possible, therefore, that if inflationary pressures do start to build, chemicals pricing could become even more volatile and unpredictable ahead of any new government measures.

"There have been much closer links this year between overall economic sentiment, reflected in global and local equity markets, and what's happening in polyolefin pricing and trading patterns," said an industry source.

So when the rumour-mill starts churning about fiscal tightening, expect to see polyolefin markets - and perhaps chemicals markets in general - responding to fluctuations in share prices.

These fluctuations might, of course, have no relevance whatsoever to the underlying fundamentals of chemicals supply and demand.

What about the other theory?
We have long-argued on this blog that oil prices are way out-of-kilter with immediate demand.

They have been this way since 2006, but right now the fragile global economic recovery has increased the risk of a sudden and sharp correction.

Some unforeseen crisis, more globally systemic than Dubai World, could result in a retreat to the US dollar and a collapse in crude back to $30-40 a barrel (where some believe it should be based on the physical market fundamentals).

This would result in the Yuan appreciating much faster than the Chinese want - because of its link to the dollar - as they try to gradually rebalance their economy away from exports and towards more domestic consumption.

A competitive devaluation of the Yuan might then take place in order to protect export trade, leading to deflationary pressures from Chinese exporters. We could then be in the middle of major global trade war.

Let's hope for a more benign outcome!!

Looking pretty - the new Shell plant at night:

Sourceof picture: Shell Chemicals

By John Richardson

WHEN Shell Chemicals officially opened its OMEGA process 750,000 tonne/year monoethylene glycol (MEG) plant in Singapore today, it mentioned how its global production share of the fibre intermediate was only 7%.

One might wonder how effective this is against the dominance of SABIC and MEGlobal in what is a highly commoditised game where final success could hinge on market muscle and economies of scale.

But the new plant at Jurong Island in Singapore is one of the biggest - if not the biggest - in the world.

Plus, Shell claims that its OMEGA process is cheaper on capital and running costs and produces far less diethylene glycol (DEG and triethylene glycol (TEG) by or co-products than conventional processes (in fact, virtually none).

Another advantage will be from the new Shell cracker under construction on neighbouring island Pulau Bukom, from which ethylene will be fed by an undersea pipeline.

"It (the cracker) will run on a full range of feedstocks from heavy paraffin wax to liquefied petroleum gas (LPG) supplied by our existing refinery," said Peter Eijsberg, Deputy Venture Director for Shell Eastern Petrochemicals Complex (SEPC).

SEPC is the wholly-owned Shell subsidiary operating the MEG plant which came on-stream last month.

It will run the 800,000 tonne/year cracker and a 175,000 tonne/year butadiene plant due on-stream in Q1 next year.

The existing refinery is being upgraded to meet the cracker's feedstock needs,

It would be possible in certain market conditions for 100% of the cracker's feedstock needs to be met by the refinery, Eijsberg added.

"We can crack vacuum-gas oil (VGO) from our vacuum distillation column, hydrowax from our hydrocracker, naphtha, of course, and LPG from various units in the refinery," he added.

So how does this compare with an ethane-based cracker and worldscale MEG plant in the Middle East?

"When your gas is practically free, the Middle East is very competitive indeed, but we do have the logistics advantage of being closer to the biggest customers in China. We can also move cargoes smaller than the 50,000 tonnes which typically come from the Middle East."

Shell, though, has made the decision to licence OMEGA. By so doing, is it in danger of undermining its competitiveness?

"I believe this isn't a challenge to our competitive position," said Iain Lo, Vice-President, New Business Development Ventures, for Shell.

Five licenses have been granted for OMEGA, - but only two officially announced, which are to Lotte Daesan in South Korea and PetroRabigh in Saudi Arabia. Both companies are already operating OMEGA plants.

Success in petrochemicals has to eventually always be about being big or getting out if you are at the commodity end of the game, is one argument.

But there is an awful lot of money to be made out of licensing.

And licensing doesn't mean you give away all the your advantages, especially if you are a company like Shell with its refinery-cracker integration and its experience in running plants.

By Malini Hariharan

Reliance Industries' bid to acquire LyondellBasell is progressing quite rapidly. I am told that a team of top executives from the company is in the US holding discussions with LyondellBasell.

And according to this report in the Houston Chronicle, the team has also been enjoying Indian food in Houston.

My source tells me that Reliance is also is talks with LyondellBasell's creditors about rescheduling debt repayments. But the company has denied an Indian media repot that it would buy out a fifth of LyondellBasell's $27bn debt.

"Why do this? Creditors would have more confidence if Reliance takes on LyondellBasell. And so debt can be rescheduled," says the source.

Another Reliance team is also said to be visited LyondellBasell's plant sites in the US.

Everyone is now waiting for 15th December when the bankruptcy court is due to hear LyondellBasell's petition to extend the deadline until 6 September 2010 for discussing its reorganization plan with creditors. Reliance is likely to make a binding offer depending on how this court hearing goes.

What has surprised many is that no new names have emerged for LyondellBasell. It was widely expected that Reliance would face competition from other competing bidders. Have the complexities associated with LyondellBasell deterred others?

This is a huge subject, one that this blog will need to keep revisiting - and if you tell us we've got it wrong, we'll always listen and respond.

Are we seeing the start of a major shift, or is this a ridiculous stretch?

Source of graph: International eChem

By John Richardson

Volatility in China's polyolefin prices has greatly increased in 2009 as a result of closer links with short-term  changes in crude oil and equity prices, said market observes and participants.

This is obscuring real levels of demand and making the planning process even harder, they added.

Linear-low density polyethylene (LLDPE) futures prices on the Dalian Commodity Exchange have closed tracked the shifts in the cost of crude oil since July 2008 - when the contract took off, said Paul Hodges of the UK-based chemicals consultancy, International e-Chem (see graph).

"Daily or even weekly fluctuations in crude don't necessarily reflect a change in the fundamentals of any chemical or polymer market," he added.

"What matters, of course, is supply and demand in a particular market and effect of crude prices on feedstock costs when you buy your raw materials."

But Hodges believes that a growing army of speculators are moving LLDPE prices on the exchange in line changes in crude as they try to make money out of daily price volatility.

China's huge increase in bank lending has made speculation in all sorts of commodities a lot during easier during 2009, he added.

"Although volumes on the Dalian Exchange have gone down a lot recently (they peaked at 85m tonnes in April of this year), it is still a great guide to sentiment in the overall physical polyolefin markets in China," said a Shanghai-based source with a major Asian polyolefin producer.

"The market is so hard to read at the moment that Dalian has become as good a guide as any. Nobody is actually pricing off the exchange, but it's helping us assess the mood.

"The Dalian exchange is shifting on a daily basis in line with equities." (equities often follow, lead or move in tandem with shifts in oil prices).

When the Dubai World debt crisis erupted in late November leading to global dips in equity markets the LLDPE futures contract also fell, he added.

On the Thursday and Friday of that same week very few buyers in China were prepared to commit to any polyolefin purchases, said Shanghai-based commodity information service CBI.

LyondellBasell's chief operating officer, Ed Dineen, also recently said that China's physical-market PE prices were being increasingly driven by crude.

Polyolefin pricing had become much more volatilie in 2009, making sales and marketing strategies very hard to plan, said a Singapore-based source with a second Asian polyolefin player.

"The maximum visibility I can hope for these days is 2-3 weeks out, and so to describe this as a sales and marketing strategy would be a stretch," he added.

"Estimating levels of real demand has become much harder these days because poylolefin pricing is moving in line with equities - which move often on pure sentiment."

By John Richardson

An ethane shortage is slowing Shell Chemicals' ambitions for building at least one cracker complex in Qatar, Ben van Beurden, executive vice-president of the company said last week.

"Ideally, we'd like to build two crackers and two OMEGA process plants on the scale of this one here in Singapore, but at the moment there is simply not enough ethane," he added.

"There are only so many allocations of ethane available from Qatar at the moment and plenty of interested parties."

Van Beurden was speaking on the sidelines of the official opening of Shell's 750,000 tonne//year OMEGA process MEG plant at Singapore's Jurong Island, which came on-stream last month.

Shell, ExxonMobil and Honam Petrochemical are three foreign companies known to be pursuing cracker projects in Qatar as joint ventures with Qatar Petroleum.

Both the Shell project - said to be delayed beyond 2015 - and that of ExxonMobil would run 100% on gas, whereas Homan's proposed plant would be mixed liquids and gas feed.

Qatar recently extended a moratorium on development of all types of new gas-fed industrial projects from 2012 to 2014 in order to further study the reservoir behaviour of its North Field gas reserves.

Van Beurden also said that using naphtha from the Pearl Gas-to-Liquids (GTL) project in Qatar wasn't a viable economic alternative as feedstock for a Shell cracker complex in the country.

"The numbers don't work compared to the economics of gas cracking, and to the alternative value from shipping the naphtha to where the demand is strong - for example, to Asia."

The Pearl GTL project - a joint venture between Qatar Petroleum and Shell - will produce high-paraffinic naphtha, along with gasoil, base oils, kerosene and normal paraffin.

Mechanical completion is due in Q4 next year with production ramp-up expected to take place from late 2010 into 2011, according to a Shell statement.

Last month, Shell further cemented its relationship with Qatar when it sold some its shares in cracker operator Petrochemical Corp of Singapore (PCS) and polyolefin producer The Polyolefin Co (Singapore) PTE Ltd to Qatar Petroleum.

"We have a long relationship with Qatar and this was one of several options we have been pursuing with them, both in Qatar itself and overseas.

"We are continuing to look at a cracker project on the eastern seaboard of China with Qatar Petroleum."

Shell, PetroChina and Qatar Petroleum announced in August that they were planning to build a refinery and petrochemical complex in Zheijiang province.

By Malini Hariharan

Japan's largest chemical company Mitsubishi Chemical Holdings has been actively restructuring this year but more needs to be done to complete its transformation.

High on the list is reorganization of its cracker operations at Mizushima. Mitsubishi and Asahi, which also has a cracker at the same site, have been talking since 2007 about unifying operations.

The two had even made an announcement in June that a study on this would be completed within two months. But that deadline has passed and it is uncertain if they can start joint operations at the site from the earlier target date of April 2010.

The official line from the two companies is that the study is still in progress.

Industry players in Japan acknowledge that 1-2m tonnes of ethylene capacity in the country will need to close given the rising competition from the Middle East. But while companies have announced plant closures for derivatives they have been hesitating when it comes to crackers.

The biggest reason for the slow pace is culture, says one industry analyst. In addition to this, cracker structure at most Japanese sites is complicated with many companies involved in offtake contracts. It is difficult to move quickly, he adds.

Mitsubishi's other challenge will be to digest the proposed merger of Mitsubishi Rayon Co (MRC). The Yen228bn ($2.57bn) deal, due to be completed in March 2010, gives Mitsubishi access to the methyl methacrylate (MMA), polymethyl methacrylate (PMMA) and carbon fibre businesses.

Mitsubishi's aim is to achieve a cost synergy of Yen3bn and operations synergy of Yen7bn by fiscal 2012-13.

But analysts are not convinced about the synergies especially as buying into MMA takes Mitsubishi away from its strategy of expanding in specialities. Even carbon fibre, they say, is not very exciting.

Carbon fibre is a value added product and demand is quite promising. But competition is likely to be intense," says a second analyst.

Analysts say that the merger was driven by financial reasons and pushed through by Bank of Mitsubishi-Tokyo which had funded MRC's $1.6bn acquisition of Lucite earlier this year.

In a recent research report analysts at Nomura said that while major synergies are unlikely, the merger gives Mitsubishi an opportunity to reconfigure its business portfolio for higher growth.

"If Japanese chemical makers are to capitalize on growing overseas demand, we think they will need to create a portfolio of businesses that are among the global leaders in terms of market share. The merger will make Mitsubishi the world leader in MMA and could facilitate major progress in compiling a full line of LCD [liquid crystal display] materials, leveraging comprehensive strengths in carbon fibre, and going on the offensive in water-treatment products. We think the merger is really aimed at leveraging MRC's strengths more fully than it can do on its own."

They pointed out that MRC did not have the capital to scale up its carbon fibre business on its own.

But they also emphasised the need for further restructuring at Mitsubishi.

"If the company can put together an all-Japan team comprising olefins, polyolefins, terephthalic acid, phenol, and polycarbonate resin, we think it could see sharp cost reductions and a business platform capable of competing worldwide."

By Malini Hariharan

Reliance Industries will take a call today on submitting a final bid for LyondellBasell, says this report from CNBC TV18.

The report, quoting unnamed sources, adds that Reliance may be having second thoughts about the acquisition. Key concerns are said to be LyondellBasell's high debt, potential liabilities if it tries to shut some older facilities and integration and management issues.

Some of the concerns appear surprising. LyondellBasell was known to have a high debt burden though it is possible that due diligence has thrown up some previously unknown facts. Closure of any plant in the US would be expensive and time consuming. And integration should have been a worry right from the start especially as LyondellBasell has been put together through so many mergers and acquisitions over the years.

By Malini Hariharan

Yesterday's media report about Reliance Industries on the verge of taking a final decision on LyondellBasell appears to have been a little premature. My sources say that a decision will be made only after the US bankruptcy court decides on a restructuring plan put forward by LyondellBasell.

The company filed a revised plan last Friday. The court is due to hear today a petition filed by LyondellBasell asking for an extension until 6 September for the exclusive right to propose a reorganization plan.

The court's decision will give more clarity to Reliance, says a source familiar with developments. If the revised plan is approved then Reliance does not have much of a chance to participate in LyondellBasell's restructuring unless invited by the current management.

But the source said that as creditors are not happy with the revised plan, Reliance has a good chance. However, Reliance still needs to do a full due diligence and only then can it take a call on whether to submit its own plan for reorganizing LyondellBasell.

The source also said that last week's meetings in the US were 'not very fruitful' as not much information was shared. 'The [LyodellBasell] management is keen on keeping control," he added.

It can be a dirty business....

Source of picture: www.China-environmental-news-blogspot.com

By John Richardson

THE sharp drop in plastics recycling in China has added 8-10 percentage points to virgin polyolefin demand growth in 2009, estimates a major Asian producer.

"It's a much bigger than we had anticipated and we're of course evaluating whether recycling will remain at the same depressed level next year," the producer added.

This appears to further confirm the impact of the recycling dip which we first recognised as important to the China growth story back in July.

Polyethylene (PE) demand is expected to grow by 31.5% in 2009 with polypropylene (PP) rising by 24%, according to Shanghai-based commodity information service CBI.

A second producer gives the following four explanations for the dip in recycling:

1.) Tougher regulations governing imports. "Legislation was made more rigorous because of environmental protests over water supply being polluted during the scrap cleaning processes," said this second producer. But interestingly, he added: "The central government faces the problem that tougher regulations are threatening the livelihood of millions of people. For example, in one inland province some 500,000 were employed in the re-processing industries, earning 4,000-5,000 Yuan a month compared with just a few hundred Yuan before the growth of recycling. Beijing is under a lot of pressure from local authorities to relax the rules." Clearly, this is a situation that needs to be monitored

2.) Less availability of scrap-plastic imports as a result of reduced exports of finished goods from China. During the global economic boom years, huge quantities of refrigerators, TVs etc were shipped to the West from China wrapped in plastic which was then returned to China

3.) The bankruptcy of a lot of traders in Q4 last year who dealt in scrap plastic and a reluctance of those still in the business to take the plunge again. Credit in China has also been so abundant that it's been very easy to borrow money to buy cargoes of freshly-manufactured resin

4.) The Delta between recycled and virgin material not being wide enough for most of this year to justify using the second-hand stuff (it has to be at least $400/tonne)

Yesterday's crucial court hearing to determine whether LyondellBasell would have until 6 September 2010 to solicit votes for its reorganization plan has been adjourned to 12 January.
It means some more waiting for Reliance Industries which is said to be seeking greater clarity from the court before it decides on a final bid for LyondellBasell.
A LyondellBasell's spokesman said that the company wants the 6 September deadline to get maximum time to solicit votes.

By John Richardson

ExxonMobil's purchase of XTO Energy for US$41bn seems to support the widely-held view that natural gas is the fuel for the future.

XTO specialises in the technology necessary to exploit shale gas and other hard-to-get-at unconventional gas reserves, including the large amounts of shale gas in the US - one of the reasons why the States has gone from natural gas feast to famine.

ExxonMobil will establish a separate division to manage production of both oil and gas from unconventional reserves.

This suggests, perhaps, that the focus and incentives created by setting up such a division will lead to XTO Energy and other breakthrough technologies being employed throughout the world.

Europe has unconventional reserves, which perhaps if successfully exploited could provide an alternative - a long with liquefied natural gas (LNG) - to sometimes politically-fraught pipeline reserves.

Easy-to-get-at gas in the Gulf Cooperation Council region of the Middle East is also becoming increasingly scarce, leading to evaluation of exploiting shale and tight gas.

The energy of the future argument rests both on concerns over Peak Oil and gas's lower carbon footprint.

The International Energy Authority (IEA), in its World Energy Outlook 2009 report launched last month, described natural gas as a "bridging fuel" until even greener alternatives become viable.

By Malini Hariharan

Qatar has reconfirmed its commitment to build more petrochemical plants including a new worldscale cracker.

At a ceremony to mark the start of construction of Qapco's new ldPE project, the deputy premier and minister of energy and industry said Qatar was launching an aggressive plan to achieve optimal utilization of the country's natural resources.

Pic source: The Peninsula

"We are working very hard to expand our petrochemical industry. Every year we are trying to add a project. We have now several projects under discussion to expand our petrochemicals and develop another world scale ethylene cracker," he said.

However, as reported by this blog, Qatar is facing a shortage of ethane which has affected Shell's plans for a cracker.

Other cracker projects that have been under study/discussion for a few years include one by ExxonMobil and the other by Honam Petrochemical.

All the three projects have been planned as joint ventures with Qatar Petroleum.

I have heard that Qatar has enough ethane to support one worldscale cracker project of at least 1.3m tonnes/year capacity. This project could be onstream in 2013-14. There is no confirmation yet on who will be the lucky recipient of this ethane but it could be ExxonMobil as its project is the most advanced.

By Malini Hariharan

Companies executing projects at Map Ta Phut in Thailand have finally received a notice from the government to stop construction work. The notice comes after the Thai Supreme court's ruling in early December to suspend 65 projects on environmental concerns.

Mitsubishi Rayon has confirmed it has stopped work at its 90,000 tonnes/year methyl methacrylate (MMA) joint venture project with the Siam Cement Group. A company source says the plant is almost 'built up' and they are still hoping for start up to take place as scheduled in the second quarter of 2010. But he admitted that there was no information on when work can restart.

PTT says that construction work at its No6 gas separation plant is nearly over and it is still discussing with government agencies on whether this project can be exempted.

The Thai prime minister Abhisit Vejjajiva reiterated yesterday that he would like to have new environmental rules by the end of the year. The deputy prime minister has also been assigned to work with the four-party panel, headed by former Thai prime minister Anand Panyarachun, in speeding up the resolution of complex legal issues.

The Bangkok Post reports that the panel has been asked to prepare its recommendations this week and forward them to the cabinet for consideration next week.

But not everyone is convinced in the government's ability to find a quick solution.

Chainoi Puankosoom, ceo and president of PTT Aromatics and Refining is reported to have expressed concern that "legal clarity will not be seen within the next twelve months due to the lengthy process involved". He would instead like a special framework that would allow affected companies to proceed with their projects

He said construction of most of the 65 suspended projects was 50-100% complete and also pointed out that suspension of construction work would not ease the pollution problem.

"It is going to take a lot more time to solve than people think," says a Bangkok-based industry analyst.

But how much more time is still not clear.

Meanwhile, I heard that the head of the four-party panel was confronted with an unpleasant smell on his recent visit to the Map Ta Phut industrial estate. He is now fully sympathetic to the plight of local residents.

The implementation of a zero-tariff regime in Asean from 1 Jauary 2010 has raised concerns among polymer producers in Indonesia and the Philippines about intense competition from Singapore and Thailand leading to a erosion in market shares.

Producers from these two countries are lobbying to defer or block implementation of zero tariffs. But a trade lawyer says the going will be difficult.

"I have heard that Indonesia is pushing for a postponement of the new duty structure. Even if the government agrees the customs department is not prepared as [new] forms are not ready," says one Singapore-based exporter.

But Edmund Sim, partner with Appleton Luff, points out that it would be difficult for Indonesia to renegotiate as the agreement has already been ratified. "It is pretty much impossible," he says.

Pic source: Fotopedia

"What is allowed under the free trade agreement (FTA) terms is for a country to suspend tariff concessions if it can be determined that increased imports have caused injury or economic damage to local companies. But in the history of FTAs this has very rarely been implemented. And even if this is put place it would be a temporary measure - say for a period of 3-5 years," says Sim.

The second option is to go for antidumping action.

"If the industry is worried about a flood of imports they can go in for this option by proving that pricing was unfair and that the local industry suffered material injury. This type of action is possible and can be extended for an indefinite period," says Sim.

But this is an expensive option because of high legal fees and it takes time to enforce. Companies also have to wait for a few months before they can initiate action.

"You have to build a record. You cannot say on 2nd January that there is dumping. You need time to build the case; usually 6-8 months is enough to get data to make a claim," he points out.

"The simple option [of raising import duties] ended when the FTA was signed. Now they have the safeguard option, which is untested, or antidumping, he adds.

Besides the Asean FTA, Indonesian media has reported that companies are also asking for a delay in the implementation of the Asean-China FTA, which comes into force from 1 January 2010.

There is a provision in the Asean-China FTA for a temporary delay in tariff reduction by reclassifying goods as 'sensitive' and 'highly sensitive' products. The duty elimination could then be delayed to 1 January 2015.

But the problem for Indonesia is that there are limits on the number of 'sensitive' and 'highly sensitive' products and the deadline for classifying goods was back in 2004, points out Sim.

It is also uncertain whether China and other Asean countries will allow Indonesia to deviate from the FTA.

"Either way, for Indonesia to delay tariff elimination will require some agreement by the other Asean members and China [in the case of the China-Asean FTA] otherwise Indonesia will be in breach of its legal obligations," says Sim.

By John Richardson

China's capacity to produce polyethylene and polypropylene will expand at a double-digit pace next year, while demand growth is expected to ease, says Longston Li, analyst at Shanghai-based CBI.

CBI expects China's polyethylene (PE) capacity would jump by 1.99m tonnes in 2010 to 11.1m tonnes, while its polypropylene (PP) capacity would increase by 2.74m tonnes to 12.7m tonnes.

"This will include not only new capacities due to start next year, but the impact of plants that were commissioned in the second half of 2009. Many of the players in the China market believe there will be great supply pressure in 2010," says Li.

China's PP output could rise by as much as 2.6m tonnes next year when plants commissioned in the second half of this year were taken into account.

While demand for PE and PP will continue to increase the extraordinary growth witnessed this year (see this entry) may not happen again.

Li expects PE demand to rise 7.1% next year to 16.27m tonnes in 2010, while PP demand would grow 12% to 14.55m tonnes next year, moderating from the projected 31.5% surge in demand for PE and 24% jump for PP in 2009.

The following excel file has a list of Chinese PE and PP projects due to start next year.
China 2010 projects.xls

By Malini Hariharan

Some projects never die.

JG Summit has been planning a cracker since 1995 but has always had problems in securing funding. The project was revived in 2005 even as questions were raised about its viability.

It would help JG Summit secure feedstock for its polyethylene and polypropylene plants, but how would it compete with larger well-established players in Singapore and Thailand, especially after the implementation of the Asean FTA from 1 January 2010 when import tariffs would fall to zero.

The market meltdown in the second half of 2008 had pushed the project to the back burner. But with economic recovery the project has once again reappeared.

JG Summit says that it is close to receiving funding from the Export-Import Bank of Korea for a 320,000 tonnes/year cracke at Bataangas.

Lance Gokongwei, president of JG Summit Holdings told reporters in Manila this week that the company was pushing ahead with the estimated $731m project. "We expect to operate the plant in 2013," he said.

Gokongwei said JG Summit had already signed an agreement with Lumus for technology and site and design development would start in March 2010.

"If the financing package from the Korea Eximbank is completed by May to August next year then the project is a sure go," Gokongwei said.

"If we can't get the financing, we will have to assess. The fallback is we wait for the right time," he added.

That sounds familiar.

By John Richardson

Carrying on with our theme of just how difficult it is to get reliable information out of China, we heard of an overseas speciality chemicals producer seeking reliable data on growth prospects for a particular province.

Pic source: destination360.com

"It contacted the provincial government which put it in touch with an industry association, run by the provincial government,' said a chemicals industry observer.

"And, of course, the industry association told the exact story they were told to tell."
It seems to be the case of aiming for the dartboard with the hope of at best hitting the outer metal rim.

If you can convince your boss that this is a good-enough basis on which to invest, make sure you have an alternative career path other than taking up golf for the first time in the hope of winning the US Open.

By John Richardson

THE increasing use of non-recourse financing has raised the cost of projects financed since 2007 in a very difficult economic climate, warns a senior industry source.

"I look at how some recent projects have been financed and worry,' he adds.

"Until 2007 money was plentiful, making it very easy to get board approval. Now you have a new generation of project financing where a project is treated as a purely separate entity, with financing the entire responsibility of a particular joint venture.

"As a result, anything financed since 2007 is Libor plus a great deal rather than the old days of Libor plus a minimum.

"The added problem is if a project gets into trouble a lender is unlikely to offer much flexibility because there is no head-office support.

"A further problem is national debt positions. Governments have been facing downgrades on their debt ratings - or in some cases have already been downgraded - because of the huge amount of money spent in fiscal stimulus. This is further adding to the cost of financing in certain locations," he says

In the final analysis it will be interesting to see whether head offices always will keep their distance in the event of major financial problems with projects.

Perhaps shareholders need to start asking tough questions ahead of H2 2010 - when lower growth in China could combine with the long-awaited great supply flood in polyolefins.

By Malini Hariharan

There is some good news for chemical companies affected by the Map Ta Phut crisis. The Thai cabinet will ask the Administrative Court to remove 19 projects from the list of 65 projects that had been ordered to stop work.

PTT's No 6 gas separation project and PTT Chemical's phenol and polyethylene projects are among the lucky 19. A full list is available here.

In another major development yesterday, the Central Administrative Court has allowed construction to resume on a steel plant as the environmental impact assessment report for this project had been approved before the 2007 Thai constitution came into effect on 24 August 2007. It had also received an operating license prior to this date.

Abhisit Vejjajiva, the Thai prime minister, has said that five or six more may be given the go ahead as they fall in the same category. And he has also reiterated the government's commitment to find an early solution.

But Map Ta Phut is just the start of a bigger movement.

In this blog report, Srisuwan Janya, a lawyer fighting on behalf of Map Ta Phut residents, disclosed that he was investigating as many 181 projects all over Thailand.

Pic source: Nation Multimedia

"The whole country will have to change," he said. "From now on, industry will have to worry about the environment and take care of the people. The government will have to also be much stricter about this."

Polyethylene (PE) and polypropylene (PP) producers expect trade to pick up only from the second quarter of 2010 when restocking activity will resume, writes our colleague Bee Lin.

Chinese importers are unlikely to build stocks before the Lunar New Year holidays which are in February. Operating rates at plastic units would also be low during this period.

Producers would then have to wait until March for a revival by when they would also see some support emerge from olefin markets. A heavy cracker turnaround schedule in Asia next year should keep ethylene and propylene supplies tight and prices firm.

An estimated 22 crackers would be shut for maintenance in 2010 compared with 15 facilities that were taken off line in 2009.

By Malini Hariharan

Even as market players celebrate the finish of what has been an unexpectedly good year there are not many who expect a repeat performance.

A key concern is Chinese demand which saved the industry in 2009. A massive government stimulus package boosted domestic consumption and imports of a wide range of petrochemicals.

But is this sustainable? And no is the answer that I am hearing. That of course makes betting on China a risky proposition.

Pic source: kafka4prez

"We expect Chinese demand to be good in the first quarter. But what will happen in the second quarter will depend on whether government stimulus will continue. Margins were good in 2009, but they will probably be squeezed next year," says a South Korean polyethylene exporter.

David Jiang of Beijing-based Sinodata Consulting says the Chinese government can't continue investing for growth.

"China faces an overinvestment problem in the coming years. Many industries face oversupply. Chemical companies are building plants for polyvinyl chloride (PVC), methanol or dimethyl ether (DME) despite low operating rates. The average industry operating for methanol and DME in H1 2009 was only 30-40%," he points out.

These investments are mostly made on government funding and few promoters care if the projects will make money. "It is a government gift," he adds.

Any deceleration in Chinese demand next year would coincide with the completion of more new projects in the country and elsewhere in the region. New capacities commissioned in 2009 are also expected to stabilize operations next year.

"We may be entering a period when supply would be easing. Will demand growth offset that? I kind of doubt it," says Mazlan Razak of Dewitt & Co.

But there are also reasons to not be too pessimistic about 2010.

Firstly, the global economic outlook looks better next year. This means that on the demand side, things will pick up in the rest of the world, points out Mazlan.

And though the Chinese government is likely to go easy on its stimulus program, it is unlikely to allow the economy to slow down.

A rise in the yuan dollar exchange rate could draw money from overseas and keep the asset bubbles from bursting.

A stronger yuan would make imports attractive and support overseas players in the Chinese market, says the Korean exporter.

China has the resources to chase growth and it has regularly been surprising sceptics. Let's hope it will once again do so.