Asian Chemical Connections

Source of picture: the truth about cars

By John Richardson

WHEN my fellow blogger Malini Hariharan once asked a particularly unhelpful individual who used to track polyethylene (PE) markets what was going on, his only response was "conditions are volatile".

And so as you kick-off this fine and sunny morning (at least it is here in Singapore), here is some further useful advice for you: Conditions are becoming even more volatile.

But unlike the individual referred to above, in a series of blog posts over the coming weeks we will endeavour to explain exactly why pricing markets have become even harder to predict. We believe that old tools of analysis need to be revised and old assumptions challenged.

We are going to start with liquefied petroleum gas (LPG) and how unexpected shortages have curtailed the length of the usual propane and butane "cracking season".

Every summer, when demand for LPG for heating in the northern hemisphere falls, cracker operators that have invested in the flexibility to change feeds often reduce naphtha consumption in favour of LPG. Cracker operators in Japan, South Korea and Singapore have, for example, invested in this flexibility.

But as these two recent graphs from the ICIS pricing Ethylene Margin Report show (click below to view), earlier this summer LPG cracking didn't make economic sense

LPGslide.ppt.

So we talked to oil, gas and refining consultants Purvin & Gertz and they gave us the following reasons why this happened:

1.) Refinery operating rates globally are constrained due to weak oil-product demand, despite the story the financial industry is spinning about booming demand
2.) Asian refineries were undergoing heavy maintenance programmes
3.) The economic crisis resulted in delays to liquefied natural gas (LNG) projects, thereby reducing the extra availability of propane and butane co or by-product that needs to be extracted from the LNG before it is shipped
4.) The well-documented OPEC oil quotas that have limited availability of associated ethane gas have also done the same for associated propane and butane
5.) Petrochemicals demand for LPG has increased due to the increased cracking of propane and butane resulting from ethane shortages, and the start-up of the three propane dehydrogenation (PDH) to polypropylene (PP) projects in Saudi Arabia. This is only a small part of the overall picture, BUT constrained LPG supply in Saudi Arabia - evidence of which came from a recent analysts report about Yansab - is one reason why it is over-simplistic to talk about new supply flooding the market without adding a few important qualifications

The LPG season has belatedly begun thanks to Asian refineries returning from turnarounds and LPG exports from a new gas-separation plant in Abu Dhabi, which is feeding the Borouge II cracker complex with ethane, add Purvin & Gertz.

But clearly there are some new variables for flexible-feed cracker operators that look as if they are here for the long-term and therefore need further study.

Tougher sanctions set to reduce Iranian exports

Source of picture: amix.dk/blog/post/19116

By John Richardson

I met a hedge-fund manager yesterday who wanted a straight answer as to why he felt that ethylene, propylene and polyolefin margins are holding-up relatively well, despite an apparent flood of new capacity.

"The margins, particularly for polyproplyene (PP), are much better than we had expected at this stage in the cycle," he said.

Interestingly, though, the ICIS Pricing Margin assessments for ethylene and polyethylene (PE) paint a different picture. We have calculated that from Q1 this year, spot cracker margins have declined by 66% in Asia, by 50% in the US - but by only 2% in Western Europe. Logistics and feedstock availablility have kept Western Europe very tight.

But even in Asia and the US, the general margins picture - although very useful in pointing towards overall direction - doesn't deal with contract prices as opposed to spot, of course.

And for specific smaller-volume grades where tightness is great, for example, low-density PE (LDPE) extrusion grade, the story seems to be very different. 

The hedge fund manager wanted simple answers in line with the history of the industry - that supply is repeatedly built way ahead of demand and that therefore, an inevitable across-the-board collapse in profitability must occur over the new few months. 

On paper, yes, if you look at the nameplate capacities that have been started-up so far this year - and those still due on-stream - and measure this against likely demand-growth rates, a collapse does seem inevitable. 

It is certainly true that Chinese production at new plants brought on-stream in H1 has quickly been stabilised, which is a significiant negative for supply and demand balances.

But I bored the hedge-fund manager, who I think wanted a good argument to short all petrochemical company shares, why supply constraints elsewhere might just mean that certain areas of the industry will get through this crisis without a collapse in margins to levels seen during previous downturns.

It will be about, I think, analysing companies based on their exposure to particular products. For example, anyone heavily into LDPE in general and linear-low density PE (LLDPE)  - for reasons we have already given on this blog many times before over the last year - might well ride out this crisis without major pain.

But PLEASE - there is a major caveat here: This all depends on no double-dip global economic recession. My good friend and fellow blogger Paul Hodges remains firmly of the view that there is a major risk of a double dip. His views are worth listening to and building into scenario plannning.

In a conversation with an industry observer today, the blog picked up some further perspectives on why history may not repeat itself on this occasion (and even if the margins collapse to previous levels, it seems likely that the explanation will be demand rather than supply-driven).

In his own words, this is what the industry observer told us:

"We need to re-examine our assumptions and maybe lower effective available capacity from Saudi Arabia and Iran.

"Propylene and C4s availability have passed tipping points and so there is a need for a very hard look at more on-purpose production."

By Malini Hariharan

Jurong Aromatics Corp (JAC), part of a rare breed of standalone aromatics projects, is finally seeing some progress.

At a time when most new aromatic projects are integrated with refinery operations, JAC plans to build a condensate splitter and an aromatics facility to produce 800,000 tonnes/year of paraxylene (PX), 450,000 tonnes/year of benzene and 200,000 tonnes/year of orthoxylene in Singapore.

Financing of the much-delayed $1.5bn project, first mooted in 2007 but held up by the 2008 financial crisis, is now likely to be completed by end-2010 with support coming from two South Korean government export agencies.

The Export-Import Bank of Korea is expected to provide a direct loan of $330 million and a 100 percent guarantee for a further $270 million. Another $600 million tranche will be fully guaranteed by Korea Trade Insurance Corp.

The project is now targeted for completion in 2014.

South Korean major SK Energy and Chinese polyester maker Jiangsu Sanfangxiang Group are the key promoters of JAC. The other major shareholders are Vijay Goradia and M Y Ling, founding members of the Continental Chemical Group, Swiss oil trader Glencore, Singapore's EDB Investments, and downstream petrochemical player Thai KK Industry Co Ltd.

JAC has already awarded a construction contract to SK Engineering & Construction Co.

It has also committed to take space at the Jurong Rock Caverns, the 1.48 million cubic metre underground oil storage facility that is due to launch the first two of five caverns in 2013.

The aromatics project, another example of Singapore's success in attracting investors, will be geared to meet Chinese demand. Offtake of the PX output is likely to be guaranteed by promoter Jiangsu Sanfangxiang which is building a 600,000 tonnes/year purified terephthalic acid (PTA) plant in Jiangsu, China.

The project is a rare combination of Korean, Chinese, Swiss, American and Thai investors coming together. Trust Singapore to provide fertile ground to make this happen.

By Malini Hariharan

More details have emerged on Petro Rabigh's second phase which conforms to Saudi Arabia's product diversification strategy.

The Kingdom is steadily expanding its presence in the aromatics chain and Petro Rabigh's plans include 800,000-850,000 tonnes/year of paraxylene (PX) and 200,000-400,000 tonnes/year of benzene.

The PX is likely to be consumed locally as Petro Rabigh plans to support a third party for construction of a 500,000 - 700,000 tonnes/year purified terephthalic acid (PTA) plant and a 200,000-400,000 tonnes/year polyethylene terphthalate (PET) unit.

Petro Rabigh has secured additional ethane allocation to enable it to debottleneck its cracker and add 300,000 tonnes/year of ethylene. But interestingly, the company has planned a 250,000-350,000 tonnes/year metathesis unit to produce sufficient propylene to meet the requirements of derivatives such as cumene and acrylic acid.

A feasibility study on the second phase is due to be completed in the third quarter of this year and if viability is confirmed the projects will start up in Q3 2014.

The report also highlighted that PetroRabigh has attracted 10 companies to invest in the Rabigh Plus Tech Park, a petrochemicals conversion zone that includes plastics processing. While the company might be happy with this number it only shows the difficulty that Saudi Arabia faces in attracting derivative investments as the Rabigh Park is designed for 50-60 petrochemical conversion industries.

By Malini Hariharan

Companies with projects at Thailand's Map Ta Phut must have heaved a sigh of relief last week after the Administrative court ruled that 74 out of 76 suspended projects could move ahead after completing health impact assessment studies and obtaining necessary approvals. The court's decision was based on a list of 11 harmful industries identified by the government that

But Map Ta Phut residents are unwilling to give up their fight to curb new investments at the country's premier industrial estate and there are signs that the conflict will continue in one form or the other.

Srisuwan Janya, a lawyer fighting on behalf of Map Ta Phut residents, has vowed to appeal the court ruling. He believes the court has wrongly applied the list retrospectively and complained that the Map Ta Phut projects had been let "off the hook".

And the four party panel, led by Thailand's former prime minister Anand Panyarachun, has questioned the government's decision to trim the list of harmful industries from 11 from the 18 that it had suggested.

Source: Bangkok Post

Anand said that while it was the government's prerogative to disagree with the list, it needed to offer the public a credible explanation as to why certain types of activities were not included.

A rally has been planned for 30 September by Map Ta Phut residents to protest against the new list.

But even as the people and politicians fight it out companies are preparing to resume project activity.

PTT Chemical is scheduled to soon start test runs at its expanded high-density polyethylene (hdPE) plant. Trial production is expected to start in October with commercial production by early 2011.

And PTT expects to start its No 6 gas separation plant in the fourth quarter. Once this is up and running PTT Chemical will be able to secure sufficient ethane to raise operating rates at its new cracker.

Petro Rabigh

Source of picture: arabianoilandgas.com

By John Richardson

Petro Rabigh's attempt to move further down the value chain raises interesting questions over exactly how successful the Saudi joint venture will be in attracting the necessary investment.

As my fellow blogger Malini Hariharan wrote earlier this week, plans for the second phase of Petro Rabigh include paraxylene (PX) to be consumed locally in downstream purified terephthalic acid (PTA) and polyethylene terephthalate (PET) plants.

Other proposed investments include a methyl tertiary butyl ether(MTBE)/isobutylene facility.

Another project in Saudi Arabia was also originally scheduled to include an MTBE/isobutylene plant as part of an integrated C4s derivatives complex. However, the prospective investor in the complex withdrew when it calculated a rate of return of below 10%, the blog was recently told.

"A leading management consultancy recently conducted a study which showed that rates of return decline progressively the further you move downstream from the cracker in all of the Gulf Co-operation Council (GCC) countries," an industry source told us yesterday.

"It still makes a lot of sense to build basic polyethylene (PE) and mono-ethylene glycol (MEG) facilities in the region, if - and this is a big IF - you can get access to attractively-priced ethane," he added.

GCC governments might be able to lavish generous investment incentives on companies in order to encourage the kind of downstream petrochemicals investment (all the way down to the processor level) that helps to alleviate high levels of unemployment.

But as we've mentioned before investment incentives are one thing and efficiency of operations are entirely another. Investors face the choice of building in the GCC or in Asia - which is much-closer to final consumption markets where labour costs are also a lot lower.

By Malini Hariharan

It's a question that has puzzled many - why has Petronas, the state-owned Malaysian oil and gas major, not made any effort to scale up its petrochemicals business in the last five years.

But there are signs that this is changing. Petronas has spun off the petrochemicals operations into a new company called Petronas Chemicals which is due to be listed on the Malaysian stock exchange by the end of this year. In August Petronas Chemicals acquired BP's stake in Ethylene Malaysia and Polyethylene Malaysia. And it bought Dow Chemical's holding in Optimal Olefins, Optimal Chemicals and Optimal Glycol last year.

In a prospectus released yesterday Petronas Chemicals provided details about its business strategy and future plans.

* All petrochemical activities will to be consolidated into a single entity to maximize efficiency. This includes centralized production management to better coordinate allocation of feedstocks. The two crackers at Kerteh (total capacity of 1m tonnes/year) will be managed as a single resource.

Source: Petronas Chemicals

* All marketing and sales functions will be by handled by MITCO, a wholly-owned subsidiary
* Product portfolio will be enhanced in the medium to long term. New grades are being developed such as pipe grade high-density polyethylene (hdPE)
* Production capacities will be expanded. Operational improvements would be made at the two crackers. In addition to this the company is reviewing debottlenecking projects for certain upstream products which should enable it to increase production of value-added deriviatives.
* An expansion of its operations in East Malaysia is being evaluated to take advantage of natural gas available in that region. A greenfield ammonia and urea complex is being studied.
* And an integrated refinery and petrochemicals complex is being studied in Peninsular Malaysia with international partners. The project is being evaluated by parent Petronas.
* The company will continue to look at acquisitions both in Malaysia and overseas.

Petronas Chemicals also revealed that reliable supply of attractively priced feedstocks is one of its key competitive strengths. Ethane prices vary by facility but are low enough to position the company at par with the average Middle East ethylene producer. Propane and butane are priced lower than the published Saudi Aramco contract prices. Methane is supplied at an "attractive discount to the average of a basket of global urea prices".

The company said consultancy Nexant Chemystems has evaluated it as among the lowest cost producers of ethylene and polyethylene globally.

With such a strong position it would be imprudent to not expand in Malaysia. But the question is whether the parent has enough gas to support new worldscale petrochemical projects and if it would be willing to part with it at 'attractive' prices.

There is plenty in the prospectus to draw prospective investors to Petronas Chemicals but it remains to be seen how fast the company can implement its plans.

All our yesterdays... the ICI Runcorn site in its heyday

Source of picture: Chesterchronicle.co.uk

By John Richardson

Yesterday's blog post on Petronas illustrates once again how the state-owned giants, albeit in this case one that is about to undergo a partial IPO, are increasingly dominating the global petrochemicals industry.

The history of the European industry - with the now effectively defunct Imperial Chemical Industries (ICI) as a prime example - was one of government-directed and/or government-owned champions providing the basic raw materials - i.e. petrochemicals - for overall industrial development, says my fellow blogger, Paul Hodges.

But some of the old Western majors are increasingly being pressured by feedstock-advantaged or strategically-driven state-owned Middle East and Asia majors, such as Petronas, Sinopec, PetroChina and SABIC. By "strategically-driven", I mean that making a profit is not necessarily the major motive.

In theory, as we've written many times before on this blog, we should see more consolidation in Western Europe in particular (the situation on the ethylene derivatives side of the business in the US seems to have changed for the long-term because of the ethane-gas advantage. As my colleague Nigel Davis suggested in a recent ICIS news article, the US might even see capacity additions that would serve Latin American growth).

Thanks to a discussion with Paul yesterday, here are a few questions to ponder over your morning coffee:

*Can European countries afford to see too much capacity closed down if this jeopardises security of vital raw-material supplies to all those downstream industries so important to their economies?

*At what point should governments step-in (what constitutes too much capacity closure?) and save companies?

*Given that Western European companies are democracies, and, as a result, are often run by politicians with the attention span of hyper-active two-year-olds, is it realistic to expect coordinated and commonsense intervention?

Answers must be no more than 3,000 words, please, on lined paper and in legible handwriting, and NO chewing gum...

By Malini Hariharan

A problem of plenty is building up in the US where the rise of shale gas production could create problems in disposal of ethane. This may sound hard to believe but a new report by Bentek Energy concludes that a big challenge for Marcellus Shale gas producers, located in Northeast US, is to find an outlet for ethane.

"In most natural gas producing regions, ethane is a highly valued byproduct of natural gas production, sold as an important feedstock for the petrochemical industry. But in the rapidly growing Marcellus producing region of the Appalachian basin, ethane is viewed by some natural gas producers as a contaminant that could threaten development plans in the area," says the consultancy.

"Without a viable offtake for ethane, the shale producers may be forced to curtail gas production," warns Bentek.

Pic Source: Marcellus Center

Production at Marcellus is steadily growing with volumes rising from 0.3 bcf/day in early 2009 to 1.2 bcf/day in August 2010. Estimates for the future range from 5 bcf/day to 10 bcf/day over the next five years.

Marcellus does not have enough gas processing infrastructure yet to extract all the natural gas liquids (NGLs). And while is this being addressed by investments in new gas processing facilities a bigger problem is that there is no market for ethane from the NGLs in Northeast US.

Interest in establishing new pipelines is said to be growing with three proposals to build infrastructure to transport the ethane to Canada and even the Gulf Coast.

But the economics could be a challenge, points out Bentek. Ethane prices would have to be sufficiently higher than natural gas to cover the cost of transportation. Another risk is that of overbuilding ethane transportation - building more capacity than what the market can absorb.

And from the petrochemicals industry perspective, ethane prices would have to be low enough to give producers a competitive edge in global markets.

Source of picture: ICIS

By John Richardson

ICIS has just published its Top 100 listing for 2009, which, not surprisingly, reveals the nothing-short-of devastating impact of the global economic crisis on chemical company financial performances.

"Unprecedented operating and financial conditions helped drive annual sales for industry giants down more than 30%," writes my colleague Nigel Davis, in an ICIS news article yesterday about this year's Top 100.

The danger, as Nigel also points out, is that - to use a cliche from football or soccer - 2010 could be a game of two halves. Withdrawal of stimulus programmes in a new age of austerity has the potential to severely dent the remarkable rebound in chemicals demand that continued until at least June of this year.

My fellow blogger Paul Hodges has also written extensively about changing demographics and consumer behaviour (the result of the debt-fuelled pre-crisis spending binge) as major long-term threats to the chemicals industry. This includes a recent article in the Financial Times.

And in a series of blog posts over the next few weeks we will examine the Chinese government's ever-more difficult balancing act as it seeks to cool down overheated sections of the economy, while still stimulating domestic growth by a sufficient amount to replace lost exports to the West.

But that's the demand story. On the supply side, as we've written about before here, some polymer and chemicals markets remain remarkably tight because of the lingering impact of the Lehman Bros-triggered financial crisis beginning in September 2008.

For example, oil demand remains below pre-crisis levels - resulting in reduced associated gas supply to Middle East petrochemicals.

Lack of investment in maintenance in an effort to preserve cash might also be keeping petrochemical markets tight as plants seem to be breaking down with greater frequency.

Supply of certain petrochemicals is being constrained by factors relating both to the crisis and big shifts in consumption and production patterns over many years that have now gone beyond "tipping points" - most notably in the case of propylene.

And so if I were to be looking to pick winners and losers from the ICIS Top 100 for 2010 - which we will be publishing this time next year - I'd be looking closely at a company's product portfolio.

Key data to mine are what percentage sales a particular company derives from each of its products.

If I were looking for winners I would, for instance, be focusing on anybody with a heavy exposure to merchant sales of propylene and C4s.

Low-density polyethylene (LDPE) is an example of a polymer that's benefited both from a plethora of production problems (provided, of course, your plants are not down!) and resilient popularity that has confounded demand-growth forecasts. There has, as a result, been insufficient investment in new capacity.

A big challenge to LDPE's position in Asia is the increase in metallocene production in this region.

But metallocene-grade linear-low density polyethylene (LLDPE) is more expensive per tonne than LDPE. It goes further - allowing down-gauging - but you have to persuade converters very comfortable with LDPE to make the switch.

Major Middle East start-ups during 2010 will inevitably result in big increases in sales for producers such as SABIC.

But assessing just how big will require close monitoring of feedstock availability - and logistics - issues.

The region also seems likely to continue to suffer from more than its fair share of production problems.

This is the kind of depth of analysis we offer to our ICIS training customers during our training events and our Asian Markets Seminars.

We raise awareness of the key changes in the industry over the last two years (and keep regular and close track of how these changes are evolving) in order to help you plan for the future.

We don't claim to have all the answers, but we never assume that history will repeat itself in exactly the same fashion.

By Malini Hariharan

After a fairly steady climb Asian polyolefin markets have hit the pause button.

Demand for polyethylene (PE) and polypropylene (PP) in China and Southeast Asia has weakened but this development has so far been balanced out by continuous reports of operating issues across Asia and the Middle East.

The latest is Yansab's announcement that it was forced to shut its 1.3m tonnes/year cracker last Friday due to technical problems. Operating rates of derivative units have been cut and the company expected normal operations to resume within two weeks.

Al-Waha also shut its 450,000 tonnes/year polypropylene (PP) plant last week and is expected to be up over the next few days.

In China, the Sinopec and Sabic joint-venture 1m tonnes/year cracker is down due to mechanical problems which are expected to take a week to fix. All the downstream polymer plants have also been shut.

Qilu Petrochemical is expected to run its 800,000 tonnes/year cracker at 80% till end-September as repairs to the furnace that caught fire last month have still to be completed

In India, a fire at Gail's high-density polyethylene (hdPE) plant killed one person and injured three others last Saturday. The company has shut down one line and has started an enquiry into the accident.

Reliance's 400,000 tonnes/year gas cracker at Nagothane is running at reduced rates (around 70%) because of an accident at feedstock supplier ONGC's cooling tower has hit supplies of ethane/propane. The situation is expected to continue for a few more weeks and until then one line of the 240,000 tonnes/year hdPE/linear-low density PE (lldPE) plant is likely to remain shut.

Indian Oil Corp (IOC) has yet to stabilise operations at its new Panipat cracker complex and polymer plants. The swing hdPE/lldPE plant was taken offline a few weeks back because of technical problems. And while the standalone hdPE and PP plants are running production of onspec grades is an issue.

Operating issues have struck Asian polymer markets at regular intervals over the last year helping producers stabilise prices.

Will this be the case once again?

A-Jubail in Saudi Arabia

Source of picture: www.chemicals-technology.com

By John Richardson

SOME of the privately-owned Saudi Arabian petrochemical producers could well be forced to consolidate as a result of lack of feedstock for expansions, an industry source told the blog yesterday.

The private players in Saudi Arabia are listed on the local stock exchange, but the majority of ownership is in the hands of private individuals or companies as opposed to state-owned SABIC and Saudi Aramco.

"Mergers are on the cards, but don't ask me to guess on the time-scale. What is likely to hold things up is that some of these companies are controlled by very proud owners," said the source.

The dilemma faced by a number of the private players, which by definition are therefore small, is the Kingdom's well-documented shortage of further supplies of stranded or cheap natural-gas feedstock.

The commodity petrochemicals business is all about running faster to stand still - meaning a constant need to improve economies of scale to match similar efforts elsewhere as the volume of demand, particularly in Asia, grows ever-larger.

Absent the raw materials for new capacity and the logic is that companies could be compelled to merge, thereby gaining greater market muscle and synergies.

But cost savings would be fairly minimal, perhaps about 1-2% of the combined companies' overall expenditure, the source added.

"Even if, say, two companies are co-located at Al-Jubail they might still be a considerable distance apart, making it difficult to share utilities. You are therefore left with just a small saving on marketing, sales and distribution.

"Nevertheless, the pressure will be there to merge in order to better-compete with the big producers."

The good news for these small players was that they were likely to continue to generate strong earnings, he added.

"Polyolefin margins are a lot better than people had expected at this stage in the cycle - and there could be a supply shortage post-2011.

"And so these companies are unlikely to be short of cash - making overseas acquisitions another option.

"A third way would be to go downstream into the plastics processing industry. But I see the processing sector as growing very slowly in Saudi Arabia because of poor economics. This is the least attractive route to growth."

By John Richardson

THE outlook for ethylene spot market availability remains muddled as a few weeks ago due to higher freight rates and uncertainties surrounding Middle East natural-gas feedstock supply.

Freight rates for all Middle East, Asia and West Mediterranean routes were higher in August than their 12-month average, according to Singapore shipping broker Braemar Quincannon.

The Middle East Gulf-Southeast Asia route was, for example, $12.92/tonne higher at $225//tonne and the Middle East Gulf-West Mediterranean route $17.50/tonne higher at $310/tonne.

"The September 2008 financial crisis led to orders for new vessels being cancelled. Since then a combination of the economic recovery and an increase in spot ethylene availability has significantly tightened the market," an ethylene trader told the blog yesterday.

We have heard that some new ethylene vessels are under construction in Asia and in a later post, when we have checked this out, we will let you know what the market believes will be the impact on freight rates.

But a further problem could remain even after any new ships come into operation: Ethylene carriers are being tied-up in more long-haul journeys, creating repositioning problems. We need a clearer explanation of the reasons for this (all we have been told so far is that this is the result of more cargoes being delivered to Northwest Europe from the Middle East) and so - again - we will get back to you.

What we can say with certainty is that gas feedstock supply in Saudi Arabia is still constrained because of the OPEC oil-quota issue.

Ethylene exports from Al-Jubail remain at zero (they have totalled 350,000-450,000 per year over the last few years, we have been told).

However, the Saudi Kayan Petrochemical Co cracker at Al-Jubail - which was brought on-stream in late July - has a C2s surplus of 500,000 tonne/year until all of its downstream units are running properly, we understand. Whether this ethylene will exported or supplied to other complexes in Al-Jubail is a moot point.

The Iran wild card remains wilder than ever: Ethylene exports have recently increased because of the closure of styrene capacity.

Styrene capacity has shut down because Iran, unable to import gasoline due to tougher sanctions, is making more of its own gasoline by blending increased quantities of aromatics (thereby, taking benzene feedstock away from styrene).

We will have to wait and see whether officially-reported new investment in gas- processing capacity and increases in electricity costs prevent the usual winter-time reduction in feedstock supply to petrochemicals.

During the winter, gas is diverted to power stations to meet greater demand for electricity for heating.

If life was easy it would be boring...

By Malini Hariharan

The much talked about revision in Saudi ethane prices may not take place in 2012. In a recent report on the Middle East petrochemical sector analysts from Nomura expected the current price of $0.75/mmbtu to continue until 2015.

They pointed out that there has been no official update from the Ministry of Petroleum over the last year.

"While changes can occur at short notice (for example, gasoline pricing in 2006), we believe the limited official update points to keeping the status quo for ethane pricing until 2015, with perhaps only minor changes to propane, naphtha and butane pricing," they said.

The analysts also confirm to the blog's view that the revision is unlikely to be significant as the Kingdom is still interested in promoting the petrochemical industry. Additionally, lenders to many of the new petrochemical projects would not welcome an abrupt price change that would adversely affect profitability.

The analysts also pointed out that several chemical projects in Saudi Arabia were being restructured as the industry was under pressure to justify to lenders that new projects met internal profitability hurdle rates at higher feedstock prices.

As for propane butane and naphtha pricing, Nomura expected the conversion factor to continue to rise modestly in line with the increases seen between 2002 and 2011.

"We assume that propane, butane and naphtha conversion continues to
gradually liberalise to approximately a 20-25% discount to international prices by 2020."

By Malini Hariharan

More news of plant shutdowns emerged today with Chinese Petroleum Corp (CPC) forced to stop production at its 500,000 tonnes/year No 5 cracker in Kaohsiung, Taiwan, after typhoon Fanapi resulted in extensive flooding.

Operations were suspended to avoid potential damage from disruption to power supply caused by the flooding, industry sources told ICIS news. The cracker was likely to restart in 2-3 days.

Many other companies at Kaohsiung were also forced to take similar measures.

Pic source: Reuters

Bloomberg reported that nearly 30 petrochemical plants at Kaohsiung were shut as a result of the typhoon, including those belonging to Formosa Plastics Corp and Nan Ya Plastics.

"Floodwaters in Kaohsiung's petrochemical parks were higher than 100 centimeters (39 inches) yesterday and Taiwan Power Co. cut the electricity supply for safety reasons," said Kuo Chao-chung, head of the petrochemical section at the Ministry of Economic Affairs' Industrial Development Bureau.

And Reuters reported that shipments from Formosa Petrochemical Corp were disrupted by the closure of a seaport near its Mailiao complex.

The latest round of shutdowns follows those that were covered by the blog last week and comes at a time when polyolefin markets are interestingly poised. Prices were stable to firm at the end of last week with demand remaining weak

Another excuse for a Dylan picture - ref "Shelter From The Storm"

Source of picture: www.israbox.com

By John Richardson

WEST EUROPEAN polyolefin markets remain tight thanks to the lingering effects of lack of spending on maintenance, several market sources have told the blog.

"Companies were so short of cash from late 2008 that they began to delay maintenance work such as furnace re-tubing," said one source yesterday.

"You normally start to experience production problems 6-9 months after this happens and we have seen this recently with the high number of outages.

"This also happens in really tight markets where nobody wants to be the first one to shut down because everyone is making so much money. So in 2005 we saw a raft out outages."

Tightness in Europe is just one of the consequences of the Lehman Bros-triggered crisis that have created a "New Normal" for markets, to borrow a phrase from my fellow blogger Paul Hodges.

Confusion continues among some industry observers who are familiar with looking at average operating rates and concluding that low average rates indicate poor overall profitability.

Average H1 operating rates for ethylene in Europe were just 82%, but some crackers were running at more than 90% while others were operating at much-lower rates or were shut down, we understand.

This was the result of both technical problems and lack of naphtha from local refiners.

The ICIS pricing European cracker and PE margin reports have consistently shown (here's a report on the 17 September issue) that variable cost margins in Europe remain an awful lot better than many people had dared to expect this time last year.

The overall "New Normal" for markets, including all the other the factors behind tight supply that we've detailed before, is leading to the view that we might just be bumping along the bottom of the cycle right now.

This is slightly earlier than the Q4 low point than had been forecast earlier this year, and, as we said, margins are in a lot healthier shape than had been predicted in Asia and the US as well as Europe.

"It is our view that we might be at the bottom, or close to the bottom, of the cycle as most of the new capacity in this current wave is already on-stream," said a Hong Kong-based chemicals analyst today.

"But most companies are only being cautiously confident because of all the risks ahead - not least, of course, the economy. Only the South Koreans are being very bullish over the prospects for 2011."

This could all still end in tears.

Iran's South Pars gas field

Source of picture: www.petropars.com

By John Richardson

THE ability of Iran to further exploit its huge natural gas reserves - and in so doing maintain ethylene exports at constant levels throughout the year - now appears to hinge on Chinese investment (Western companies have withdrawn from the Iranian energy sector due to the tougher sanctions regime).

As we wrote on Friday last week there are big doubts in the short term over the truth behind official claims that gas extraction and processing issues have already been resolved.

What happens every winter and summer is that ethylene exports from Iran dip as gas supply is diverted from crackers to power stations, in order to meet a rise in demand for electricity.

But in the longer term, China could transform the picture. In 2009, China National Petroleum Corp (CNPC) replaced Total in a contract to develop a major portion of Iran's giant South Pars gas field.

China National Offshore Oil Co (CNOOC) is also involved in developing the North Pars field and in building liquefaction facilities.

There are much bigger issues at stake here, though, than ethylene trade-flows - as this article from the Wall Street Journal, co-authored by a former Central Intelligence Agency officer, indicates.

If Obama has the mettle - along with taking on the Republican Party and those unusual people in the Tea Party movement - Chinese and Russian companies investing in Iran could face US sanctions (Russia has also stepped-up its involvement in the Iranian energy sector). 

China and Russia appear to have become the last-chance saloon for the Iranians as they seek to develop their natural gas and oil reserves - and also the under-invested refining sector: Sinopec is developing oil fields and upgrading refineries at Tabriz, Arak and Abadan.

In July, Iran's Oil Ministry announced it had reached a $40bn dollar deal with China to revitalise its refining industry.

Further - both Russian and Chinese companies are stepping in where Westerners fear to tread by exporting gasoline to Iran.

The Iranians, as we also reported in last week's post on the ethylene trade, have closed-down styrene capacity to divert benzene feedstock into gasoline blending (this resulted in the spike in ethylene exports last month as the C2s were not needed for styrene production).

A total of six petrochemicals plants have been shut, we have read - including also paraxylene (PX) facilities.

Whether the Chinese and Russians can now fill the gasoline import gap created by Western embargoes will be important to monitor - as it will determine whether these six petrochemical plants will be able to re-start.

An example of how Lexan solar control IR sheets (made by SABIC Innovative Plastics) can be put to use

Source of picture: SABIC

By John Richardson

SAUDI ARABIA is busy reshaping its petrochemical industry to reflect a drastic shift in priorities.

Such is the change in the kingdom that commentators are going so as far as to say that major capacity additions of commodity petrochemicals will soon become a thing of the past.

The Saudi government is only supporting new investments downstream of the basic cracker derivatives in an attempt to diversify the economy and create more jobs (as you go further downstream, labour intensity increases).

To some extent, this also applies to other countries in the Gulf Cooperation Council (GCC). But what happens in Saudi Arabia is important, as this is where most of the project activity is in differentiated, or value-added, chemicals.

A separate but very important theme worth more exploration is where the new commodity capacity to serve voracious emerging-market demand growth will be added - as what is being planned in Saudi Arabia and elsewhere in the GCC is unlikely to be anywhere close to sufficient.

China is an obvious candidate. So is Singapore, as it takes advantage of spare refinery-based feedstock.

Malaysia is another strong possibility. It has very competitive ethane-gas feedstock, and the petrochemicals division of Petronas will have a much bigger motive to expand once its listing takes place, the current schedule for which is the fourth quarter this year.

But returning to Saudi Arabia, the shift downstream will leave the smaller, private producers that have a limited or even a single-product portfolio in a weak position, according to an industry source.

"Even if future allocations of natural-gas feedstock were readily available - and we all know they are not because of supply constraints - the government will only give them to companies moving up the value-chain," says the source.

It is a classic chicken-and-egg situation, according to an HSBC report on Middle East petrochemicals.

"Access to feeds that can be used for downstream development is likely to be limited to companies that [already] have a broad product portfolio and can therefore integrate internally," says the report.

Companies involved in refinery-based petrochemicals, such as Saudi Aramco, are also likely to emerge as winners, the report says: some of the downstream chemicals being planned require oil-based rather than gas feedstock.

So the strategy for these smaller, marginalised producers is likely to be mergers, acquisitions and diversification into plastics processing, adds the industry source.

It is important to stress, though, that larger and more diversified private companies are in a different position - most notably, Saudi Arabia International Petrochemical Co (Sipchem).

Sipchem brought its methanol plant on stream in 2004 and has since commissioned acetic acid and vinyl acetate monomer (VAM) facilities.

Last month, Sipchem announced a joint venture with Rhodia to build the Middle East's first ethyl acetate plant.

This is exactly the kind of "access to feeds" integration that HSBC is talking about, as Sipchem has acetic acid raw material for the ethyl acetate project.

SABIC, along with Saudi Aramco, is, of course, ideally placed to cash in on the diversification strategy because of its own access to feedstocks.

But to what extent will these two giants make money?

What is certain is that returns will be less than the massive margins generated by a relatively simple ethane-based cracker and downstream polyethylene (PE) and monoethylene glycol (MEG).

How much is made depends on what Saudi Arabia decides to build, says HSBC.

The bank carried out an internal rate of return (IRR) study of 40 basic and differentiated commodity chemicals that could be produced across the Middle East with a 10% hurdle rate for project viability.

Its conclusion is that intermediate chemicals - but not all the way downstream into specialities - Is where Saudi Arabia, and the Middle East in general, should be positioned.

These include acrylics, acetyls, epoxy resins, polyacetals and the polycarbonate (PC) and nylon chains.

SABIC has announced a polyacetals joint venture with Celanese, which is due to start-up in 2013.

Saudi Kayan Petrochemical Co (Saudi Kayan), which is 35% owned by SABIC, will become the region's first PC producer when it brings its plant on stream at Al-Jubail, Saudi Arabia, next year.

And the second phase of Saudi Arabia's PetroRabigh - the joint venture between Saudi Aramco and Sumitomo Chemical - could include other intermediate petrochemicals such as ethylene propylene rubber (EPR) and thermoplastic olefins.

The second phase might also include paraxylene (PX), purified terephthalic acid (PTA) and polyethylene terephthalate (PET), which HSBC identified as other products suitable for the region.

A feasibility study into PetroRabigh's second phase is due to be completed in the third quarter of this year, with a start-up targeted for the third quarter of 2014.

What will not work in the Middle East is production of water treatment chemicals, plastic additives, construction chemicals, catalysts, oil-field chemicals and speciality coatings and adhesives, adds HSBC.

This is the result of low demand for these products in the region and the importance of locating plants in countries where the consumption is big, such as China.

This assumes, though, no heavy government subsidies, with plastic additives quite possibly part of slow-to-get-off-the-ground plastics-processing parks in Saudi Arabia and Abu Dhabi.

A big question is to what extent western and Japanese companies will be willing to license technologies.

The returns for licensors are solid enough, as they include marketing and distribution fees at 5-8% of revenues and licensing fees at a further 1-2% of revenues, says HSBC.

Access to low-cost finance is another temptation, with interest rates at just 2-3% - well below what the foreign majors would have to pay in their home countries.

The evidence to date is that a fair number of overseas players have been prepared to license technologies, although a great deal more deals need to be struck if Saudi Arabia is to fulfil all its ambitions.

But a second industry source adds: "The western and Japanese speciality chemicals market is highly fragmented...so for the smaller players, going to Saudi Arabia makes every bit of sense.

"These smaller players are in a bind when you think about it. It is a choice of no growth at home or going overseas to sometimes less-than-ideal returns."

Saudi Arabia also has the money to acquire companies that own these technologies. An historic case in point was SABIC's purchase of GE Plastics, and with it a distribution network.

Ownership of distribution networks becomes important as you go downstream.
Where there is money, there is usually a way around most obstacles.

By Malini Hariharan

Sabic's Saudi Kayan appears to be heading down the same road as other recent Saudi petrochemical projects.

After starting up a 1m tonnes/year cracker and a mono ethylene glycol (MEG) facility, a local media report states that commercial production is likely only in late 2011 and not mid-2011 as was widely expected in the market.

The report, which quotes a senior company official, did not give reasons for the late start of commercial production.

The blog had heard a few months back that the Saudi Kayan needed another couple of years to complete the entire project and that plans for a 2010 start were too ambitious but this news was dismissed after the company's announcement of a successful start of the cracker. It appears we were a little premature.

Source: Saudi Kayan

Saudi Kayan has been a troubled project right since its inception in 2003. First conceived by a private-sector company, it did not progress as there were difficulties in putting it together because of its size and the breadth of the product slate which ranged from polyethylene to ethylene oxide derivatives and polycarbonate (PC). This was of course necessary as the Saudi government was putting pressure on companies to add value to base petrochemicals.

The project was finally rescued by Sabic in 2006 and was initially targeted for completion in 2009 and then pushed back to 2010.

It has turned out to be an expensive project. The company said in July that it was 24% over budget after having spent about $9.4bn till the end of March. It has since then secured a loan of $1.2bn and is in talks to obtain the balance amount.

"To us this start up delay and financing issues clearly signifies deteriorating economics for mixed feed facilities in Saudi Arabia," pointed out Ahmed Hassan of Alembic Global in a recent report on the company.

He estimated that ethylene production costs for a mixed feed facility like Saudi Kayan were in the $450-500/tonne range, significantly higher than pure Saudi ethane facilities with production costs of $200/tonne.

"If I didn't care what happens to you...."

Source of picture: www.sydbarrett.com

By John Richardson

AS many as 25 new ethylene vessels could be in operation by 2013 as a result of what one shipping industry source told the blog was "irresponsible shipping brokers and consultants talking up the market".

He predicted that the end-result would be a steep fall in freight rates if anywhere close to this number of ships actually ends up in service.

The good news is that some of the vessels on order represent options that can be cancelled if the market starts to turn pear-shaped well before 2013.

Those who have taken out the options might alternatively demonstrate a little vision if the immediate outlook for rates remains firm. Pigs could also take flight - or is that a tad too cynical?

Right now, as we have reported  several times during the last few weeks, ethylene freight rates are high as a result of a shortage of ships and repositioning problems.

"The shortage is the result of some orders for vessels being cancelled at the height of the recent economic crisis," the source adds.

And he further helped explain the repositioning problem as being the result of a greater amount of tonnage being tied-up on long-haul journeys due to increased surpluses in the Middle East.

Numerous difficulties with starting-up new complexes in a coordinated fashion and last month's steep rise in exports from Iran - a consequence of the knock-on effect of diverting benzene into gasoline production - have added to Middle East volumes.

As a result, more ships are plying the Middle East-to-Asia and Middle East-to-Europe routes than was the case before. This is creating longer lead times to get ships back in place to work short-haul routes - for example, Southeast Asia to Northeast Asia.

So the brokers and consultants have been conducting road shows on the wonderful long-term returns that the ethylene freight market promises based on what are only short-term issues, says the source.

Eventually the new complexes in the Middle East will fully stabilise production by sorting out technical problems, reducing volumes from the region, he adds.

Restructuring at SABIC might also encourage greater internal use of ethylene (perhaps more of this later when we have asked more questions).

Feedstock shortages in Saudi Arabia resulting from the OPEC oil quotas are also likely to last for several more years, maintaining downward pressure on shipments out of the Al-Jubail site. We will discuss this in detail in another post later this week.

It also seems inevitable that project announcements will be made in Singapore sooner rather than later which will consume some, if not all, of Shell Chemicals' 150,000 tonne/year surplus. This might include a 200,000-300,000 tonne/year metallocene linear-low density PE (LLDPE) plant by Japan's Prime Polymer.

And the Ras Laffan Olefins Co cracker in Qatar, currently long by an estimated 100,000-150,000 tonne/year, is set to become balanced when a low density polyethylene (LDPE) project starts-up. The plant is due to be brought on-stream in Q1 2012, according to ICIS Plants & Projects.

And in a further post this week we will explore opinions on future ethylene trade from Iran as new sanctions are more rigorously applied. There is a significant risk of a sharp fall in exports.

But even if all of the sources we have spoken to on the merchant ethylene trade are wrong and volumes do not dip in a big way, our shipping industry sources makes the point that 25 ships would still be far too many.

It would represent around 125,000 tonnes of additional tonnage into a market, which, we think, totals very roughly 450,000 tonnes (sorry, but this is very rough: Our estimate is based on 90 ships in service at maybe an average of 5,000 tonnes each - please correct us if we are wrong).

So why is the ethylene shipping industry in this position?

"As I said, it is irresponsible brokers and consultants who have persuaded mainly fund managers with big resources to place orders for new ships," continues our source.

"The managers have been tempted not only by high freight rates but also the fall in the cost of building vessels because of the financial crisis - from $55-60m each to around $40m.

"The theory is that they order the vessels and re-sell them at a profit before delivery."

The money is a drop in the ocean (sorry for the horrible pun) for these managers of sometimes multi-billion dollar funds.

But the impact on the relatively tiny ethylene trade - and on any owners who buy these vessels - could be quite nasty.

"The petrochemical industry might have had a good year but owners across all the sectors - liquids, gases, dry bulk and containers - are struggling," he says.

Rates have only gone up 3-4% since the steep rises in bunker-fuel costs on higher oil and in labour costs on the shortage of qualified crew, he adds.

"Most owners are already defaulting on their original repayment terms. The banks have been willing to reschedule many of their loans because some repayments are better than none and, if they foreclose, they wouldn't get anything."

The arrival of these new ethylene ships runs the risk of making a bad situation even worse.

By John Richardson

The consolidation talked about in Indonesia for more than ten years - that between cracker operator and polyethylene (PE) producer Chandra Asri and polypropylene (PP) producer TriPolyta - is finally set to happen by January next year.

Now it will be up to the companies to make the synergies work with the most obvious big question - which we will seek to answer on the blog - how this might bolster plans for new olefins capacity.

Indonesia's ethylene deficit is set to rise from 533,000 tonnes in 2008 to 561,000 tonnes by 2013, according to Japan's Ministry of Economy, Trade and Industry (METI).

The propylene deficit is to rise from 517,000 tonnes in 2008 to 587,000 tonnes in 2013, again according to METI.

                                            Chandra Asri

Source of picture: www.barito-pacific.com

This big import dependence has long been a drag on the economics of the Indonesian industry with an overall lack of integration another big problem.

Lack of integration is still an issue, of course, as PT Titan - the former BP-owned PE plant - is under the ownership of Malaysia's Titan Chemicals.

So if Chandra Asri were to go ahead with a new cracker investment this might well - under the current ownership structures - only benefit the economics of its own PE production and the cost and availability of propylene supplied to TriPolyta.

Titan was recently bought by South Korea's Honam Petrochemical and the South Korean major has told us of its plans to expand cracker capacity at Titan's Pasir Gudang site in Malaysia.

Will this extra ethylene be used to also improve the economics of PT Titan, a big buyer of C2s, or could it be kept at the Pasir Gudang for downstream expansions there?

Could further ownership changes be on the cards?

Watch this space.....

By Malini Hariharan

The blog was able to talk to a Korean polyolefins producer who was not perturbed by the recent weakness in Chinese demand and was fairly confident of selling October volumes.

"It's the holiday season so converters do not want to buy. But I see no reason to lower prices. We have sold more than 50% of our October shipments. I think the Chinese buyers will return in the second week of October and we will still have enough time to receive orders and make shipments," he said quite confidently.

But he was cautious enough to encourage his sales team to become more active in other markets around the world.

"I could manage some deals with some longstanding customers; we have some good markets in the Middle East and Africa," he added.

With October out of the way, producers have only two more month to close the year. And it looks like 2010 will not be a bad year. Integrated margins could have been better but they were not in negative territory as had been widely feared by the industry.

"I think the market will remain stable to weak in the fourth quarter; I do not expect prices to crash but there are also not likely to rise very fast. There will be increased supply from the new Saudi plants and also Borouge. These volumes will not crash the market but it will soften a bit," the Korean producer predicted.

With one year out of the way the blog is now accepting predictions for 2011.

Source of picture: http://www.westernesa.com/

By John Richardson

AN allegation has been made that traders could be changing bills of lading on cargoes of a certain liquids chemical being shipped out of Iran in an effort to get round tougher international sanctions.

"What is I suspect is happening is that a cargo loaded in Iran is first being shipped to another country where the bill of lading is then changed to indicate that it was loaded in that second country. It then leaves this second port for its final destination," an industry source told the blog late last week.

We have obviously been told what particular chemical is involved in this alleged trade and where it is claimed that the trading companies are based - but have decided it would be best not to publish details without documentary proof (which, with our resources, we are very unlikely to get!).

A second source said yesterday that while he hadn't heard of specific instances where this was happening, he would not be surprised at all if bills of lading were being changed given current market conditions.

But a shipping broker pointed out over the phone this morning that bills of lading were checked very closely by ship owners, none of whom would do anything that was illegal.

"If this is happening I think it must therefore be on a very small scale," he said.

Regardless of the truth of the allegation, the people we spoke to agree that the Iranian petrochemicals and polymer industries are becoming increasingly marginalised by the tougher sanctions.

Questions are being asked about whether Iran will be able to continue to export ethylene. This would be a big deal for the merchant market as the country is a major source of supply.

"If you are a trader and attempt to make payments to Iran in either dollars or euros through a Western bank, there is a much higher chance these days that the money will be frozen," added our first source.

"Similarly, any money you are owed by an end-user for a cargo from Iran is much more likely to be suspended in the current political climate."

And the shipping broker added: "There is big pressure from the US on Western banks and on lenders in the Middle East - particularly in Abu Dhabi and Dubai where a lot of business is done with Iran.

"US officials are paying visits to those suspected of continuing business with Iran and are being warned that if they don't comply with the new rules, they will be banned from doing business in both the US and in the Euro zone. No major bank can take that risk."

We have also been told that it has become much harder to insure Iranian shipments - as there is also greater pressure on the insurance companies.

By Malini Hariharan

This is a tough time for those who are in the business of forecasting. Predictions of petrochemical margins hitting the bottom in 2009 have so far not materialised and volumes from new plants are being digested quite easily.

"What's happening? It is hard to understand the [market] situation; until when can you be optimistic," questioned a rather confused equity analyst who has been telling his clients petrochemical earnings would fall this year.

"All the analysts have turned out to be wrong [in their forecasts] and their opinions were based on what consultants said. It is becoming really difficult to forecast petrochemical demand and supply," he added.

While operating problems and the time taken to stabilise operations at new plants have kept supply in check, demand has also been good in China and other Asian markets. Producers have had major problems offloading volumes and even a slowdown in Chinese demand for the last few weeks has not prompted panic selling.

LG Chem Petrochemical Earnings

Source: Company

His third quarter operating profit forecast for the South Korean majors (LG Chem, Honam Petrochemical and Hanwha Chemical) is that it will be flat quarter-on-quarter. "At best we are looking at slightly lower than Q2 as July was a big weak. It was only in late August that we saw strong prices and September was nearly flat. But the Q3 estimate is higher than expected earlier," he said.

And, more importantly, 2010 earnings are likely to be higher than 2009.

The goat has been got 

Source of picture: michaelscomments.wordpress.com

By John Richardson

EARLIER this week we blogged on the 25 or so ethylene carriers that could be delivered into the shipping market by 2013 and the risk this poses to freight rates.

Thanks to one of our readers, Mark Mirosevic-Sorgo - managing director of Singapore-based shipping broker Braemar Quincannon - for pointing out that the semi-refrigerated C2s shipping market, while suffering from a fine balancing point, has successfully absorbed speculative new capacity before.

He also stressed, in his comment on the post, that these ships have the flexibility to carry cargoes such as liquefied petroleum gas (LPG), ammonia and vinyl chloride monomer (VCM) - creating the potential for all this extra tonnage to be absorbed across several markets.

But whatever the impact on freight rates, the new-vessel orders point to a very worrying underlying issue, according to a petrochemicals industry source.

"Industry observers are going round saying that profitability in the ethylene chain will be back to peak levels by 2015, based on a global GDP ((gross domestic product) growth forecast of 3.8% per year," he said.

"This seems far too high, but the real issue is that part of their argument for record profitability is that some people will shut crackers down in the interim - but this is an oxymoron, as why would people shut down, if record profitability is forecast?

"Equally, forecasts of record profitability suggest to the great unwashed that more ethylene capacity will be needed and hence more shipping.

"They don't understand that there is no link between ethylene capacity changes and shipping as people always try to integrate supply/demand so they can instead move the derivatives.

"The observers are obviously not saying this, but their assumptions go everywhere, and people are simply drawing what seems to them to be an obvious, though spurious, conclusion. "

Somebody clearly got this bloke's goat, and I think, by the sound of it, for a very good reason.

But if it is fund managers awash with money to invest who have ordered these ships, (as we again said in the original post) the odd $40m down the proverbial sink isn't going to make much difference to their bonuses.

There is also a chance that these particular gambles among many might pay off - especially if, as Mark said, the extra tonnage ends up being comfortably spread across several chemicals.

More importantly for the main industry that this blog covers - petrochemicals in case you haven't already guessed - the industry source's comments point to the danger of new crackers being built before the market is ready.

Nothing new there then.....