Asian Chemical Connections

By Malini Hariharan

The blog is back in action and would like to wish its readers the very best for 2011.

The start of a new year is a time for forecasts. And ICIS pricing editors have been busy gauging industry expectations. The blog will start with the fibre intermediates chain today where, not surprisingly, producers are very bullish.

Pic source: gotcheapbinoculars.com

Purified terephthalic acid (PTA) producers expect prices to scale new peaks in 2011 on demand from new polyester plants in China and India, writes Becky Zhang. PTA prices had hit a 15-year high of $1,570-1,270/tonne cfr China in November 2010.

ICIS estimates that 4.7m tonnes/year of new poly-condensation capacity in China is due this year, which would bring the total Chinese poly-condensation capacity to 33.5m tonnes/year. India, the second largest polyester production hub in Asia, is expected to introduce around 500,000 tonnes/year of new capacity in 2011, adding to existing capacity of around 4.3m tonnes/year.

In contrast, only three new PTA plants and one expansion project, with a total new capacity of 3.5m tonnes/year, are expected to be added this year in Asia - all located in China.

As written by the blog earlier, sourcing PTA is likely to be a headache for the next couple of years.

The other raw material for polyester, mono ethylene glycol (MEG) is also expected to see a strong 2011 with no new capacities due until 2013.

The lack of supply may propel MEG prices to new highs in 2011. Spot values hit a 29-month high in early November at $1,150-1,180 CFR CMP, according to ICIS.

"It's really difficult for us to locate more MEG contract volumes next year because almost all the major suppliers said their contracts had been snapped up," said a Zhejiang-based polyester maker.

Besides a reduction in contract volumes, buyers also expected contract terms to become stricter.

MEG majors SABIC, Shell and MEGlobal are reported to have reduced discounts offered to contract customers.

Caprolactam supplies are also likely to remain tight in 2011 as well, writes Junie Lim.

Producers estimate that the global demand for caprolactam to expand by 8% to 4.32m tonnes in 2011, with more than 58% of demand coming from Asia.

Demand for caprolactam would be strongly supported by Asia's growing automotive industry. Tyre-cord is a large and growing market, especially in China.

Only two expansion projects are in the pipeline for 2011 - one by Ube Industries in Thailand, and the other by China Petrochemical Development Corp (CPDC) in Taiwan,

These companies will add only 40,000 tonnes of supply to the market, most of which is likely to be absorbed in the respective domestic markets.

Tight supply of feedstock caprolactam will pose operational challenges for the nylon industry but producers do not foresee any difficulty in pushing through price hikes in the Chinese market where annual demand is projected to grow by 10% over the next two to three years.

By Malini Hariharan

When it comes to methanol its all about China. Producers are expecting another strong year if Chinese demand remains robust.

China's appetite kept Asian spot prices in the $200-410/tonne range last year and the expectation is for prices to hover between $300-400/tonne this year, writes my colleague Heng Hui, ICIS pricing methanol editor for Asia.

Chinese demand, running at around 18m tonnes, will be the key support factor.
The country already accounts for a little over 30% of global demand and offers the strongest growth potential in the formaldehyde, DME and gasoline blendng sectors.

Demand growth, which is generally estimated at over 20%/year on average, is widely expected to continue at the same pace as in 2010, writes Ross Yeo, ICIS pricing methanol editor for Europe.

China's role will become even more critical once Methanex starts operations at its delayed 1.3m tonnes/year project at Egypt. The plant was originally due to start in Q1 2010 but is now under commissioning with volumes likely to flow in Q1.

Markets will also have to absorb nearly 3m tonnes of new capacity that was brought onstream during 2010. The full impact of this was not felt last year as the new plants were commissioned during shutdowns at other plants.

And China is also adding capacity - estimates for 2011 range from 2m to 6m tonnes. Total capacity last year was 27m tonnes.

However, the average operating rate was less than 50% in 2010 creating room for imports. The big question is whether imports will continue.

Source: CBI

Traditionally, Chinese coal-based methanol plants have run hard when prices are over $300/tonne. But a government move to restrict emissions last year resulted in reduced production even at high prices.

Production was also hampered by the redirection of feedstock natural gas to heating purposes during the winter season in China, as per the government's mandate every year.

But the situation this year is still unclear and a rise in local production can easily put pressure on exporters.

"I think it could be a volatile year - Chinese production has to balance the market," warns one producer.

By Malini Hariharan

With crude oil at around $88/bbl and naphtha hitting $890/tonne cfr Japan on Monday, the pressure is building up along the olefins chain.

Ethylene is trading at around $1200/tonne cfr NEA while propylene is at $1280/tonne cfr NEA. Offers of ethylene at above $1250/tonne and propylene at $1320-1330/tonne have not found any takers.

Further downstream, polyolefin offers have been raised and some business has been transacted at levels higher than December prices.

One trader believes that market fundamentals are quite strong. "Price hikes in January are possible; supply is still short for some grades. I am positive," he says.

He is also confident that Chinese government measures to tighten liquidity this year will not be at the cost of economic growth.

However, others say the outlook is still uncertain. "Chinese demand is not as strong as expected; there is also resistance to high prices," says one source.

Pic source: www.bordbia.ie

The Chinese government's decision in late December to raise interest rates by 25 basis points is likely to dampen buying especially by traders. And supply is rising as new plants in Thailand, India and the Middle East ramp up production.

"This is the downcycle; we are in it now. Operating rates will have to be cut; it is only a matter of time," says one very pessimistic source.

In the short term producers have to contend with naphtha which is being supported by crude oil prices and a cold winter in the northern hemisphere.

Naphtha is predicted to remain firm as supply is set to tighten following refinery turnarounds in the Middle East.

Traders say that Abu Dhabi National Oil Company (ADNOC) is due to shut a 140,000 bbl/day condensate splitter for a month from mid-January. And Saudi Aramco is expected to slash naphtha exports to Asia by half a million tonnes in the first half of 2011 due to refinery maintenance in Rabigh and Jubail.

Prices are likely to ease only in the second quarter once cracker turnarounds start in Asia. If that's the case the pressure on margins is likely to continue.

By Malini Hariharan

The good news for polyolefin producers is that prices in China are inching up supported by an upward movement in the key linear low-density polyethylene (lldPE) futures contract on the Dalian Commodity Exchange (DCE).

The arbitrage window has opened with the Dalian contract for May at CNY12,800/tonne and spot prices at CNY11,100-11,300/tonne. My colleague in Shanghai says that traders were actively booking import cargoes for arrival in February-March and covering these transactions on the futures market. The monthly holding cost is approximately CNY200-300/tonne.

Pic source: Xinhua

Bids for imported lldPE cargoes this week were at $1420-1430/tonne cfr China. There has also been a slight movement in high-density polyethylene (hdPE) with some yarn-grade cargoes said to be sold at $1385/tonne cfr China. Low-density PE prices for film grade were at $1700-1720/tonne cfr China.

But the bad news is that naphtha is still rising. It touched $900/tonne cfr Japan on Thursday before closing at $892.00-896.50/tonne cfr Japan.

The naphtha crack spread hit $186.35/tonne versus Brent crude on Wednesday, the highest in nearly three years

Producers in Northeast Asia are worried. "Naphtha is a big headache for us; we cannot transfer the cost increase especially in high-density polyethylene (hdPE). This is problematic," says one producer.

The producer has yet to adjust operating rates but there were unconfirmed reports yesterday that Formosa Petrochemical Corp (FPC) plans to cut operating rates at its three crackers because of spiraling naphtha prices.

After one round of price hikes, its time for producers to seek more.

By John Richardson

A gaping chasm has opened up over the past 18 months between nameplate capacities and effective operating rates, resulting in much greater focus on the latter.

It isn't easy and it is getting ever-more complicated to assess the actual volumes likely to hit markets.

There is a considerably well-supported school of thought that 2011 will represent a year of capacity absorption. More new plants are set to start up and facilities recently brought on stream should, in theory, run a little better.

But this assumes that the myriad technical problems at new Middle East plants that held back production in 2009 and 2010 will be resolved.

What nobody seems to have a clear perspective on is the extent to which faults have been built into the basic structure and design of plants, making technical fixes hard to achieve. If such fixes are possible, why haven't they already happened?

It has been suggested that corners were cut on construction when project costs were at their highest in 2006-07.

The manpower issue is also not going to be resolved anytime soon.

Petrochemical companies the world over, and particularly in Iran, lack sufficient experienced staff to operate plants and rectify outages in a timely fashion.

"A mechanical problem that would take two weeks to fix in Europe can take several months to sort out in Iran," an industry observer said.

There are rumours of major logistics problems at the container port in Al-Jubail on Saudi Arabia's east coast.

A lack of enough experience in handling bills of lading and letters of credit is a cause of delays in shipments from one particular complex in the Middle East, according to a polyolefins trader.

Insufficient reliable information about the extent of these issues, and when and if they will be resolved, are further complications.

Government policy in China is another major imponderable that will still have to be pondered in 2011.

Sinopec was forced to cut polyolefin production by 10% in December because gas-oil feedstock for crackers had been diverted into diesel production.

Has China already achieved its emissions target under the 11th Five-Year Plan that expires in March, and will this therefore mean no more cuts in coal-derived electricity supply?

It was efforts to achieve these targets that led to a diesel shortage as factories were forced to switch on their diesel-powered back-up generators.

Source of picture: incadventures.com

Once the 12th Five-Year Plan has been announced at the National People's Congress in March, there is the added complication of working out the timing of further cuts in emissions.

The Beijing-based online economic research publication, the China Economic Quarterly, says that China will reduce its total emissions by an additional 17% during the upcoming Five-Year Plan, which will run from March 2011 until March 2015.

Will everyone wait until towards the end of the plan to hit emissions targets, as was the case this time?

Or will the government force quicker compliance in order to avoid the embarrassment of being at risk of missing its own target?

A further imponderable is how global refinery operations will affect feedstock supply for petrochemicals.

Constrained production at European refiners was a factor behind low operating rates at crackers in 2010.

Oil, refining and chemicals analysts have been queuing up of late to claim that refinery margins have bottomed out, meaning higher production in 2011.

But a Singapore-based oil and refining consultant said: "Refinery margins will recover but not by that much. It will be the complex, full-conversion refineries that will benefit and not the simple refineries."

Reading the intentions of OPEC is also going to be critical. If the oil cartel cannot resist political pressure over rising oil prices we might see an increase in production quotas later this year, resulting in more associated gas supply. Lack of associated gas was perhaps the biggest factor of all in restraining Middle East production in 2010.

If there is a delayed oversupply crisis as new plants run better and both naphtha and associated gas feedstock supply increases, how will the petrochemicals industry in the West respond?

The past two years have seen exceptional operating-rate discipline among these producers. This has been the result of mergers and acquisitions that have taken place since the last big downturn and inventory losses suffered in the fourth quarter of 2008.

Without an inventory shock on the same scale (and for goodness sake let's hope that this doesn't happen), will producers be as quick to turn operating rates down?

If producers bring idled plants back on stream just as markets tank, and if under-pressure sales staff are tempted to chase volumes in an effort to hit unrealistic targets, will this make the problem worse?

Perhaps the biggest doubts of all, though, rest around growth.

Global demand growth for chemicals has to a large extent been driven by China's re-export trade. This has involved importing large volumes of chemicals and polymers for re-export to the West and to wealthier parts of Asia.

A recent report by Credit Suisse goes to the heart of the debate over how quickly home-grown domestic demand in China will replace lost exports.

With the West in deep economic funk and the Chinese government eager to wean the country off exports, will growth decline? This question applies to this year and probably much of the rest of the current decade.

"Over the last 22 years, demand multipliers - ethylene demand growth to global GDP growth - have averaged 1.3x. However the multipliers in this decade (2000-07) have averaged only 0.9x," Credit Suisse said in the report.

"The question is what are we going to get going forward? Will multipliers rise as demand growth shifts to emerging markets as some have suggested? Or will it be otherwise?

"Using China's exports of plastic-related products, we estimate that in 2009-10, China's exports of product accounted for 45% of total ethylene/propylene demand, or 11% of total world demand.

"Going forward, as export growth slows, and shifts away from the more manufacturing-driven products into higher value-added things, the demand for petrochemicals from this segment of China's GDP is likely to slow."

Source of picture: chemindustry.org.sg

By John Richardson

NEW plants could be built in Singapore downstream of Shell Chemicals plans for optimising high-purity ethylene oxide (EO) production in the city state, the blog was told recently by a senior Shell Chemicals executive.

We assume that the new facilities are likely to produce high-value ethoxylates and perhaps ethanolamines. This would fit-in with the Singapore Economic Development Board strategy of going further down the petrochemicals value-chain.

Shell Chemicals acquired complete ownership of Ethylene Glycols Singapore (EGS) in November through buying-out the 30% stake held by a Mitsubishi Chemical-led Japanese consortium.

Following the deal there were media reports that the company planned to both optimise high-purity EO production at the Jurong Island petrochemicals complex and expand EO capacity, including possibly building a new plant.

Our colleagues at ICIS news had reported back in May last year that Shell Chemicals was in the advanced stage of planning for a new high-purity EO plant in Singapore.

But Iain Lo, the company's Vice-President New Business Development and Ventures, told us: "I would rather use the term optimisation than expansion because it's all about looking at the best balance between EO and mono-ethylene glycol (MEG) production."

This balancing-out would involve both the older EGS plant and the Omega-process EO/MEG plant, which was brought on-stream in November last year, he added.

"Our high-purity EO could be consumed by new 'over-the-fence' customers in Singapore. This would fit with the Singapore government's objective of adding value downstream.

"It is a developing story and we expect some announcements in H2 next year."

By Malini Hariharan

After months of talks, PetroChina finally signed a framework agreement with Ineos for partnerships in refining, trading and petrochemicals at Grangemouth in Scotland and Lavera in France. The companies will be working towards the formation of these ventures by end-June 2011.

PetroChina's parent China National Petroleum Corp (CNPC) and Ineos also signed an agreement to share refining and petrochemical technology and expertise.

Pic Source: www.businessinsider.com

For Ineos, Europe's largest independent refiner the deal to partner with one of the world's largest refiner makes a great deal of sense.

It not only secures the future of the two sites but also gives the company an entry into China's lucrative petrochemicals market.

Ineos director Tom Crotty said the agreement to give Ineos the opportunity to lever its polyolefins, polyvinyl chloride (PVC), chlorine, possibly acrylonitirile (ACN) and other technologies into China.

But beyond sharing of technologies, what Ineos should be looking at is a cracker joint venture in China. This has been difficult task for most foreign companies except those that can offer oil. But the planned joint venture with PetroChina gives Ineos a good platform to pursue a cracker and deriviatives project.

Ineos currently has only one project in the country - a phenol and acetone joint venture with Sinopec at Nanjing.

Financially, Ineos will be pleased as a cash injection by PetroChina would help it in its deleveraging efforts. "We are not talking small numbers here," said Crotty in this interview.

As for PetroChina, a deal with Inoes is much more than gaining a foothold in Europe. It would help PetroChina hedge against uncertain product pricing policies in China where the government is working hard to tame inflation, says one analyst in this report. A second pointed out that with a share in a refinery in major trading areas, PetroChina would have a secure supply of oil products and storage capacity for its expanding trading operations.

After expanding in Asia (a stake in Singapore Refining Co and a joint venture with JX Nippon Oil in Japan) and Europe, speculation has mounted that the company will soon turn its attention to the US to achieve its ambition of becoming an integrated international energy company.

And PetroChina has deep pockets - its chairman has said that the company plans to spend $60bn in overseas acquisitions.

But it remains to be seen if the PetroChina can to make a smooth entry into the US as the last effort by a Chinese company (CNOOC's bid for Unocal) to acquire a refining asset was scuttled by political pressure.

By John Richardson

ONE of the many factors behind petrochemicals supply being less than expected during 2010 has been logistics problems in Saudi Arabia.

One trader we spoke to on the sidelines of last month's Gulf Petrochemicals and Chemicals Association (GPCA) conference in Dubai told us that one particular complex was struggling to accurately complete documentation necessary for letters of credit.

"This is down to a lack of experienced staff - a major issue throughout the region," he said.

The trader is now helping the company concerned to complete paperwork in the right way.

An industry observer said that it takes an average of 17 days to clear a container from Saudi Arabia. This compares with an Organisation of Economic Co-operation and Development (OECD) average of ten days.

The container port at Jeddah. Source of picture - Saudi government website.

"Part of the problem is constantly changing rules and regulations leading to confusion over paperwork and lack of system integration for clearance," he added.

Port delays have resulted in on-site storage running out, forcing operators to stack resin in the desert, he added.

Bringing on-stream all the new capacities in the Middle East was always going to be challenge - because of the number and the size of the plants.

But what nobody predicted was the extent of technical problems that have held back production, along with an equally unexpected shortage of feedstock.

Logistics is a further wild card thrown into the pack, making the task of assessing likely volume-flows from the Middle East in 2011 even harder.

By Malini Hariharan

Investment activity is picking up in Qatar. After Total, Shell and ExxonMobil confirmed their interest in new projects, Qatar Petrochemical Co (QAPCO) is talking on expanding its cracker.

The company is working on expanding its 720,000 tonne/year cracker to 900,000 tonnes/year by the first quarter of 2014, said QAPCO's board director and general manager, Mohammed Yousef al-Mulla in an interview with ICIS news recently. But it is not clear where the feedstock will come from.

Pic source: www.arabianoilandgas.com

As reported by the blog earlier, a feasibility study is also underway for an expansion of Ras Laffan Olefins' 1.3m tonne/year cracker to 1.45m-1.6m tonnes/year.

Mulla also disclosed that capacity of Qatofin's 450,000 tonne/year linear low density polyethylene (LLDPE) plant would be raised to 600,000 tonnes/year.

QAPCO is also on track to start commercial production at its new 300,000 tonne/year low density PE (LDPE) plant at Mesaieed by early 2012, raising the company's total LDPE capacity to 700,000 tonnes/year.

Meanwhile Egypt is turning to Sabic to kickstart its ambitious petrochemical programme. An Echem source told ICIS news that the that the two companies are studying a joint venture for an ethane cracker and a 400,000 tonne/year polyethylene (PE) plant in Alexandria, Egypt.

Echem hopes to start the new plants after three years - a very optimistic target as the joint venture has yet to be formed.

Patrick Thomas

Source of picture: Bayer Material Science

By John Richardson

SUCCESS in chemicals - whether you are into commodities or specialities - is largely about eking out maximum value from every single molecule in all the important markets.

The almost obsessive focus on China and other emerging markets might give the impression that "all the important markets" relegates the economically ailing West to the second or third division.

But any truly global chemicals company worth its salt needs to balance investment across each of the big consuming regions.

And so, after all the fanfare of last month's announcements by Bayer Material Science (BMS) of a further $1bn of capital spending in China, the company has also been keen to stress what it is doing in Germany and the US.

The chemicals major plans to invest a total of €3.5bn ($4.5bn) in these three countries over the next five years. This will involve commercialising a new technology, upgrading existing plants, building new production facilities and a lot more work on research and development (R&D).

"Our further expansion plans in Germany include growing our coatings facility in Leverkusen that produces aliphatic isocyanate, hexamethylene di-isocyanate (HDI) and isophorone di-isocyanate (IPDI) coatings," said the company's chief executive officer, Patrick Thomas, in an interview.

"This investment should be sanctioned by the board in the next 12 months and completed in two years."

Next he detailed an example of molecule-value stretching: plans to build a commercial-scale demonstration plant that will use the company's oxygen depolarised-cathode technology for producing chlorine. Start-up is scheduled for later in 2011 or the beginning of 2012.

This will involve the conversion of BMS's last remaining mercury cell chlor-alkali process unit in the world, which is located at Uerdingen in Germany, and result in big savings on electricity costs and reduced CO2 emissions.

In effect, hydrogen fuel cells are integrated in the chlorine cell as part of this new process, lowering electricity consumption (the main cost component in chlor-alkali production) by 50% compared with mercury or diaphragm cells.

Thirty per cent less electricity is required when facilities are converted from the membrane technologies.

The company will eventually convert all of its plants to this new breakthrough process, Thomas added.

And he said: "We have signed a memorandum of understanding (MOU) with China BlueStar (the mainly state-owned Chinese speciality chemicals giant).

"BlueStar, which is the technology supplier and builder of just about all the chlor-alkali units in China, plans to use our new technology across the country. The first step is to build a pilot unit in Caojing."

BMS will also invest in Baytown, which is near Houston, Texas, and the site of company's largest US production facility.

Polycarbonate, methyl di p-phenylene isocyanate (MDI) and toluene di-isocyanate (TDI) facilities will be upgraded at the site, involving debottlenecking and technical improvements to boost reliability.

Work will also be carried out on improving logistics, such as building a chlorine pipeline from feedstock supplier Oxyvinyl, which is 20km away. This will take chlorine transportation off roads and railways.

"These investments in both the US and Germany illustrate that they are still very important markets for us," said Thomas.

In volume terms, the US and Germany remain as big as China for BMS - even if they are eclipsed in terms of percentage growth-rates.

So, of course, because growth is booming in China, the big investments in new plants are taking place in that country.

Thomas provided a great deal more detail about what BMS wants to build at its big production site in Caojing, Shanghai, compared with what was reported last month.

"Our plan for MDI is to reach 1m tonne/year of capacity between now and 2016," he said
"This will involve a debottlenecking of our existing plant to 500,000 tonne/year from 350,000 tonne/year and building a new unit of 500,000 tonne/year."

The new polycarbonate plant being evaluated for Caojing will be an "economic copy paste" of the existing 200,000 tonne/year facility at the same site.

So it will initially also be 200,000 tonne/year and then the company wants to debottleneck both the old and new plants by 50,000 tonne/year to get to a total capacity at the site of 500,000 tonne/year.

"Capital equipment for the new plant has already been pre-ordered and our target is to bring the new plant on-stream in 2013. The debottleneckings will then take place 12-18 months after that."

Thomas stressed that the decision to move the BMS polycarbonate global headquarters to Shanghai from Germany would not mean any redundancies.

The company also wants to build a new coatings plant in Shanghai. Like the coatings investment in Germany, this new facility will produce solvent-free, water-based aliphatic coatings.

Capacity of this new plant would be 50,000 tonne/year with start-up scheduled for 2013-2014.

The existing 30,000 tonne/.year plant at Caojing is to also be debottlenecked.
"All our projects at Caojing have reached the Memorandum of Cooperation (MOC) phase," said Thomas.

"The MOC phase is a step along from an MOU and means that the local Shanghai authorities will now move on to studying our proposals.

BMS is to begin environmental impact assessments and feasibility studies as part of a local approvals process that involves about 20 different steps.

"Once these steps have been completed, some aspects of our overall plan for Shanghai will need to be submitted to the central government's National Development and Reform Commission (NDRC) for final approval.

"Other elements of the expansions can go ahead with only local government backing."
Further product development work in China includes building a large-scale PC automobile-glass demonstration hall in Shanghai.

R&D development work in the auto and appliances industries mainly occurs in China, as does manufacturing.

But the electronics industry is slightly different.

"The know-how is in the US, Japan, South Korea and Taiwan with the manufacturing - because of the low labour costs - in China," said Thomas.

This is why BMS opened a functional films research centre in Singapore in June last year as the city state is "an international hub for the development of technology, drawing on expertise for the whole region".

The functional films centre focuses on research into coated high-tech films and nanotechnology for electronics.

Stand still in this business and you end up being overtaken, and, quite probably, kicked off the running track altogether.

The opportunities are huge, but as the BMS announcements indicate, so are the difficulties in making sure you both keep pace with competitors in China while not losing focus on all the important markets.

By Malini Hariharan

There is finally some movement at Petronas. After last month's joint announcement with BASF on a study for a Euro1bn investment in speciality chemicals, news has emerged that the Malaysian major is also exploring the feasibility of a new petrochemical complex at Kerteh.

The complex would have a 1m tonnes/year ethane cracker and downstream polymer plants, reports ICIS news.

It would include a polyethylene (PE) plant and a polypropylene (PP) unit, said a source close to the company. A second source said the plants would have a capacity of at least 400,000 tonnes/year.

Petronas currently operates two crackers at Kerteh with a total capacity of 1m tonnes/year.

Pic source: Petronas

The sources did not disclose more details about the project and Petronas was also not available for an official comment.

But the information is interesting as Petronas had disclosed in the prospectus issued for its subsidiary Petronas Chemical that it was studying a petrochemical project downstream of a refinery in peninsular Malaysia.
http://www.icis.com/blogs/asian-chemical-connections/2010/09/a-sleeping-giant-awakens.html

But with gas said to be available on the east coast it makes sense to first examine the feasibility of an ethane cracker

By John Richardson

ANXIETY seems to be growing in the chemical industry over China's plan to migrate its economy away from export dependence towards greater domestic consumption.

The sense of nervousness picked up in several conversations with company executives over the past few weeks indicates how much is at stake for an industry that has hugely benefited from the Chinese growth model. The model has involved importing lots of raw materials, including chemicals and polymers, for re-export as finished goods.

To put this into an overall macro-economic context, China has now comfortably surpassed Japan to become the world's second largest economy, according to the online research publication, the China Economic Quarterly (CEQ).

The Chinese economy, now worth $5,800bn, has tripled in size in just six years with per capita incomes rising from $1,500 to $4,300 over the same period.

In an extraordinarily blunt article published in the China Daily in December, economist Yu Yongding said that painful structural reforms were essential if China was to get anywhere close to maintaining this stunning pace of growth.

Problems he highlighted, which have also been pointed out by other economists, include capital investment that accounts for more than 50% of GDP. Nearly a quarter of this investment has gone into real estate, he claimed.

"There are simply too many luxurious condominiums, magnificent government office buildings and soaring sky-scrapers," he wrote.

What was amazing was both the tone of the article, the fact that it was published in an official newspaper - and also because Yu was formerly a member of the monetary committee of the People's Bank of China.

Wasteful investment in too-much industrial capacity, as a result of soft loans to state-owned enterprises (SOEs) from state-owned banks, have been singled-out as another issue by other economists.

Misallocation of capital looked as if it had slowed down prior to the global economic crisis.

But once the massive economic stimulus package was launched to deal with the crisis in late 2008, the state-owned lenders were left with loan reserves burning a hole in their books.

"Because the banks were suddenly flush with capital and were told to go out and lend by the central government, the most established and therefore easiest route to get rid of this money was through lending to the SOEs," said a Beijing-based financial analyst.
"The SOEs in turn found the easiest way to dispose of this money was into new industrial capacity."

The financial analyst believes that this has left China more dependent on exports than before the economic crisis, evidence of which is a rise in China's current-account surplus as a proportion of global GDP.

Fixing the odds in favour of China's highly competitive export industries has had other consequences, according to critics of the China growth model. They include low wages and lack of full-time employment contracts and social benefit provision for rural migrant workers; high levels of pollution due to lax environmental standards; and lack of financing for private businesses because the state-owned banks lend primarily to the SOEs.

These factors have all held back growth in private wealth. Expansion in private incomes and tackling income inequality are essential for boosting domestic consumption.

Yu believes that a combination of a political culture of "sycophancy and cynicism" and a lack of "innovation and creation" in Chinese industry, make structural reforms exceptionally difficult. He argues that even though China churned out 17m cars last year, the country has a very small number of its own brands.

The CEQ takes a much more optimistic view and says that to start with, many foreign commentators have oversimplified things when they talk about the shift to greater domestic consumption.

"China's investment needs remain enormous, and its capacity to pick up global export market share, especially in higher-end goods, remains significant," wrote the online service in its fourth quarter 2010 report.

"Investment and exports will not disappear soon as drivers of growth."

Policy makers have also got much more serious about pushing through structural changes, a sign of which was a recent change in rules governing dividend payments by SOEs, the CEQ added.

Over the past four years the 120 biggest SOE groups paid 6% of their profits in dividends to the government, but most of these dividends were recycled back as capital injections and subsidies, it said.

The government plans to raise payout requirements to 10-15%, and extend the payment policy to all 1,600 centrally-controlled SOEs, creating the chance that some of this money will be funnelled into social service spending.

But official growth estimates, released during 2010's October Communist Party plenum point to the scale of economic disruption.

Officials were quoted as expecting lower GDP growth under the 12th Five-Year Plan (2011-2015) compared with to average of 11% per year under the 11th plan, which has just come to an end.

And this is the huge issue for the chemicals industry. Beijing expects export growth to average around 10% per year during the new five-year plan compared with 27% in the five years before the global economic crisis.

How quickly will domestic growth replace this slower expansion in exports?

By Malini Hariharan

Asian naphtha prices, which were expected to remain firm this quarter, have come under pressure as large volumes of European material are heading towards this region.

Naphtha was trading at around $885/tonne cfr Japan last evening supported only by the strength in crude oil prices with WTI at $91.69/bbl and Brent at $98/bbl.

But with nearly 600,000 tonnes of product on its way from Europe naphtha premiums have slipped and could fall further, traders told Felicia Loo, ICIS pricing editor for naphtha.

Europe has been able to move large volumes because of poor demand as some crackers switched to liquefied petroleum gas. Poor economics for gasoline blending have added to the problem.

In petrochemicals, ethylene and propylene prices have been stable this week but benzene has moved up, led by price hikes in the US and Europe and supported by crude oil.

Prices have hit a 28-month high of $1,120-1,130/tonne fob Korea, a level last seen in early September 2008.

     "Only another thousand or so years to go....."

      Source of picture: Atlantic Council

By John Richardson

HERE we go again, eh? Yes, as rising crude-oil prices and overall inflation pose a major threat to the petrochemicals industry.

Nothing the blog has read or heard over the last two weeks has given us any great confidence that the fundamentals in polyolefin markets (the market we track most closely) have changed for the better since December to support rising raw-material costs.

And you can make an argument that the fundamentals look weaker than they did in late 2010.

The Chinese New Year (CNY) is, of course, on the way and this year it falls on 3 February.

How will buyers of resin effectively estimate their purchases ahead of the holiday period as during that period they - and the rest of China - will not be around to assess the feel of markets in general, from crude through to polyolefins? In other words, they might over or under-stock and be hit by an unanticipated shift in feedstock prices.

This fear, very evident from our discussions with a couple of converters this week, is based on the idea that if you are in the market you are able to predict what is going to happen. Sure thing....

The other big worry is on China growth, as we discussed yesterday in terms of the impact of a major government policy shift ahead of the official start of the 12th Five-Year Plan in March.

GDP (gross domestic product) and export growth is expected to slow down during the period of the plan. This would be the result of policies designed to switch the economy away from over-reliance of exports and investment and towards more domestic consumption.

The other big issue in China, across Asia, and also in the EU and the UK, is inflation in general

Are the inflationary pressures mainly core (excluding energy, other commodity and food costs) or non-core?

In China the inflationary pressures seem to be very-much core, despite the big contribution that rising oil and food costs have played in the recent surge in the consumer-price index.

Too much money is still sloshing around in the system following the late 2008 economic stimulus package, a symptom of which is the continued increase in property prices.

So China keeps on raising its bank-reserve requirements. Several more interest-rate increases seem to be on the cards for this year.

The rise in the cost of living sets back the government's agenda of reducing dependence on exports and investment as drivers of GDP growth towards increased domestic consumption, as higher costs are hurting the "sandwich generation". These are the young people too rich to qualify for the limited social housing available in the major cities, but also too poor to afford the now astronomically high costs of private accommodation.

An email that went viral just before Christmas, written by disgruntled Bejingers, calculated how long peasant farmers, blue-collar workers and prostitutes would have to work to afford a condo in the city.

As long as there were no natural disasters, a peasant farmer working an average plot of land would just have been able to afford an apartment if he or she somehow had worked since the Tang dynasty, which ended in 907AD, until today, the email calculated.

In another popular e-mail, an anonymous author describes the misery facing ordinary people in China's increasingly unequal society.

"Can't afford to be born because a Caesarean costs Rmb50,000; can't afford to study because schools cost at least Rmb30,000; can't afford to live anywhere because each square metre is at least Rmb20,000; can't afford to get sick because pharmaceutical profits are at least 10-fold; can't afford to die because cremation costs at least Rmb30,000," the e-mail reads.

Social stability is crucial for continued strong economic growth and for the Communist Party to remain in power, both of which, some would argue, are connected.

Inflation across Asia, driven by, as we've said, higher crude and also higher commodity prices in general, have prompted recent interest-rate rises in South Korea and India.

And as we said at the beginning, quite possibly here we go again as inflation is arguably being largely drive by speculative funds pouring into oil and other commodity futures markets.

 This year is to date is reminding everyone of 2008 when oil and crop prices surged to record highs and then collapsed.

There are two radically opposed schools of thought about the role of speculators rising commodities prices.

"I feel it is a combination of both speculation and stronger demand, but the essential danger remains a sudden unwinding of the price if the speculators head for the exit," said a Singapore-based oil and refining consultant earlier this week.

"As of a few weeks ago, there were far more non-commercial contracts (the quant funds, the hedge funds and the pension-fund managers etc) open on the NYMEX compared with June 2008, when oil reached its peak of $147/bbl.

"This suggests a huge increase in speculative money and in my view poses a significant risk.

"As I said, though, there are strong demand factors behind the price - for example, the recent minus 15 degrees temperatures in South Korea that have raised heating-oil demand. There has been the drive to hit emissions targets in China that resulted in a big surge in demand for diesel.

"But on the supply side there is a lot of surplus capacity still around - 6m bbl/day of crude, for example - and crude and crude-product inventories are high.

"This suggests that to some extent OPEC is deliberately keeping the market tight by keeping supply off the market, and that speculators are able to keep crude and oil products in inventory because interest rates remain low.

"And so nothing really has changed. The big concern remains what will happen if and when interest rates rise in the US and easy lending conditions disappear.

"My feeling is that a crude price of $80-85/bbl is justified based on demand and so an unwinding from current levels is possible."

Our fellow blogger Paul Hodges pointed to the extent of the oil oil-product inventory overhang in a post earlier this week.

OPEC seems to be happy provided prices don't consistently move above $100/bbl - good news in a way because it doesn't seem to have any immediate plans to raise output. Thus there is no risk of more associated gas increasing polyolefin supply. But supply could still increase substantially in 2011 if plants operate more smoothly.

In a worrying echo of 2008, purchasing managers down all the petrochemical chains could be tempted to chase higher oil prices. A sudden collapse in crude could, as we have warned many times before, lead to inventory losses similar to those in Q4 of that year.

Chasing higher oil prices is a huge risk in such an uncertain, and potentially a lot weaker, demand-growth environment.

Source of picture: Dallhouse University, Canada

By John Richardson

THE incredibly smart way in which polyolefin producers have managed production since the great collapse of September 2008 continues to defy what appear to remain some very uncertain, and some cases weak, macro-economic fundamentals.

As we discussed on Wednesday, China faces a significant demand-growth gap as its economy changes gear. Yesterday we talked about surging crude oil and inflation in Asia, Europe and the US as further big concerns for 2011.

But ever since the great Lehman Bros disaster there have been numerous other macro-economic threats - and constant predictions of new polyolefin supply wrecking the market - that have failed to make life a misery.

A big reason seems to be, as we said at the start of this post and as we've said before, the determination of producers to ration output and control their inventories.

Yes, emerging-market growth continues to surprise on the upside. But as Nigel Davis, editor of the Insight section at ICIS news points out, global production has yet to return to 2007 levels.

Right now the cost-push is intense as olefins, polyolefins and petrochemicals prices in general (we will look at some of the other product chains next week) surge to record levels.

US propylene contract prices rose by a whopping 28% in January with the ethylene contract up by 13% in December compared with October, according to William Lemos, Senior Editor, Manager, at ICIS pricing in Houston.

The European market continues to defy the pessimists. Polypropylene (PP) prices, for example, reached record levels earlier this week as producers were comfortably able to pass on the rise in propylene costs.

The blog began last year in a pessimistic mood, by May felt overwhelmed with the persistent optimism of the industry as it succumbed to a heavy bout of euphoria, felt a little more gloomy by December and now, quite frankly, hasn't got a clue.

Another of my colleagues, Linda Naylor, Senior Editor with ICIS pricing who covers the European polyolefin markets, has also spent a lot of time expecting everything to end in tears.

But she believes that her predictions have floundered largely thanks to production management.

One European PP buyer told her this week that there has always been a crash after a price rally on the lines of the one we are seeing right now.

He believes this time, though, that if volumes continue to be very skilfully controlled, a crash won't happen.

Asian prices have increased in line with those in Europe and the US, but in a sluggish, reluctant fashion due to widespread worries over weaker China growth.

There is talk of prices edging up a little further after the Chinese New Year (CNY) holidays, which fall in the first week of February.

Comments from a Southeast Asian-based sales executive with a leading North American polyolefin producer perfectly describe the nervousness in Asian markets we have been picking up over the past couple of weeks.

"The big question is how much more feedstock cost increases the end-users can take," he told us yesterday.

"They are remaining exceptionally reluctant to buy because they are worried about the direction of crude and the effect of inflation on demand.

"If you can manage to sell to an end-user margins are paper-thin at $20-30/tonne. You really need a minimum of $30/tonne to cover your storage and letters of credit costs.

"What we are seeing, therefore, is not much price movement.

"The Middle East is selling just below market prices and the South Koreans and Taiwanese are seeing their margins squeezed."

(Note - we have heard of one Southeast Asian cracker with poor integration which has cut back on high-density polyethylene production in order to sell more ethylene)

"We have seen in the past few days, though, a moderate increase in buying by traders as they take positions ready for after the CNY," continued the sales executive.

"I am not sure to what extent these purchases have been driven by current arbitrage on the Dalian Commodity Exchange, anticipation of higher oil prices versus estimates of an up-tick in real demand post-New Year.

"For the traders  it can be a no-lose game these days as even if physical prices start falling, they might have already made their money on the Dalian.

"Linear-low densitypolyethylene (LLDPE) domestic prices right are now equivalent to $1,320-1,330/tonne compared with the May contract on Dalian - which is at $1,380-1,400.

(Note - The May contract is seeing the biggest trading-volume at the moment, as is always the case with the contract which closes four to five months out)

"Import prices are, however, at the same level of Dalian so there is no arbitrage to use overseas shipments to back-up deals on the exchange," he added.

"LDPE is kind of stuck at $1,700/tonne and I don't see much room for movement upwards in the short term.

"The good news is that inventories are low across-the-broad. End-users are hand-to-mouth, as they have been since 2008, traders have only 3-4 weeks in stock and producers around a month.

"So far there is not much sign of anybody chasing higher oil prices."

There you have it. Any predictions gratefully accepted.

By Malini Hariharan

Regular readers of the blog will remember a November post that had highlighted delays at ONGC Petro-Additions Ltd's (OPaL) 1.1m tonnes/year cracker project at Dahej on the west coast of India.

This time there is some progress to report. OPaL has finally selected Chevron Philips Chemical to provide technology for a standalone 340,000 tonens/year high-density polyethylene (HDPE) plant. The engineering, procurement and construction (EPC) contract for this plant was awarded to South Korea's Daelim.

The other development is on the financial side with Gail (India) receiving board approval for a 19% stake in OPaL. However, Gail is said to be still negotiating for marketing rights from the project.

"The project is on track now," said a source close to OPaL.

Pic source: www.smu.ca

But it is probably a little early to say this as OPaL has yet to award the lump sum turnkey contract for a swing polyethylene plant and a polypropylene (PP) unit.

"Bids will be submitted this week; 12 contractors have been shortlisted," the source added.

A second source close to developments does not expect the LSTK contract to be awarded before April

What all of this means is that while the project is moving forward it is still very likely that the company will miss its Q1 2013 target date.

By Malini Hariharan

How many projects is Petronas Chemical planning?

Last week the blog had covered an ICIS news report which referred to a study on 1m tonnes/year ethane cracker and derivative units at Kerteh.

Now a report from UBS says Petronas Chemical is looking at making operational improvements at its two existing crackers at Kerteh and building an integrated refinery-petrochemical complex with international partners.

"Petronas Group is taking the lead in evaluating the project, and Petronas Chemical should be more closely involved in examining the project at a suitable juncture. If this project were to proceed and be completed, Petronas Chemical would be able to further diversify its feedstock source and expand its production capacity. We estimate this project has the potential to add 1mtpa cracker, with downstream PE and PP capacity of around 400ktpa," says UBS.

The blog has heard from other sources that a feasibility study on the refinery-petrochemical project has started and that it would be located in southern Malaysia. If the project is approved this year completion is likely in 2015-16.

The naphtha cracker would also provide the feedstocks to support an investment in speciality chemicals that is being studied by Petronas Chemical and BASF.

It is difficult to see Petronas Chemical pursuing two cracker projects simultaneously as this would place a huge demand on the company especially in terms of manpower resources. Then there are doubts on whether sufficient ethane is available. The existing crackers at Kerteh are reported to be facing a shortfall in ethane supplies.

And if the Petronas Group makes investments in upstream gas facilities to improve ethane availability it make more more sense to expand the existing crackers rather than build a new one, points out one source.

Besides new projects Petronas Chemical is also looking at acquisitions, says UBS in its report.

"The company has indicated that it might consider selective opportunities to expand both domestically and overseas through strategic acquisitions that are consistent with its core petrochemical activities or that help Petronas Chemical to gain a foothold in markets where the Petronas Group already has oil and gas operations."

This would allow Petronas Chemical to develop vertically integrated operations.

Davos 2011 

Source of picture: eacci.net

By John Richardson

THE edginess and nervousness of Asian polyolefin markets we talked about last week is likely to be part of the mindset of any chemicals company CEO right now.

As my colleague Nigel Davis wrote about last week, the industry's financial results for 2010 are set to exceed all expectations. INEOS, Lanxess and Clariant will see their profits double over 2009, according to S&P analysts. Profits at the world's biggest chemicals company by sales, BASF, are forecast to hit a new record high.

But to what extent will better results be due strong emerging markets while Western demand remains below pre-crisis levels?

To what degree will improved returns reflect inventory building down production chains after a de-stocking overreaction? A classic example and extreme example is the re-stocking which supported US chemicals and other industries throughout 2010 after the great 2008 collapse.

A further factor behind good results will be manufacturing-rate discipline. We saw this in the chemicals industry in 2009-2010 when it became much better at matching production to what, on a global basis, was depleted demand versus before the crisis.

This was the result of plant closures and constantly adjusted operating rates at facilities that continued to run.

All of this can be hard to calculate in the frenzy and noise of any reporting season. Even in quieter periods, numbers can be notoriously hard to analyse correctly.

If all of these factors turn out to be very significant in last year's stellar performances, it will not take the shine off what has been achieved. The industry has clearly been very smart in managing extremely volatile economic conditions.

However, talking about our first point, a lot of companies still depend on the West for a high percentage of their sales.

The blog, along with Paul Hodges at International eChem, believes that many of the policies adopted by Western governments have failed to address to the underlying causes of sub-par growth. This is the ageing of the Babyboomers.

Watch out for much more on this subject over the coming year as we prepare a book on this subject.

Persistently high US unemployment and the state of the country's housing market reflect policy failures.

To what degree has emerging-market growth depended on importing chemicals and polymers for re-export as finished goods to the West? Policy weaknesses of Western governments and a deliberate change of course by the Chinese government are threats to this growth.

And finally and most immediately, the threat of inflation must rank very high in any CEOs concerns.

As we shall discuss later this week there is an argument to be made that hidden inflationary pressures in China indicate that Beijing has lost control of the problem.

We also believe that the crude-oil market is dysfunctional and is firmly in the hands of speculators. Both short and long-term pricing do not reflect demand and supply fundamentals.

As a result, we could well be in the middle of a mini repeat of 2008. Crude seems to have risen to unsustainable levels due to the demand destruction it is causing the ultimate consumers - the motorists, the shoppers etc.

It is always very hard for chemicals-company purchasing managers to assess the extent of this demand destruction and inevitably, as crude continues on a bull run, they will have to buy forward.

"Even if raw-material purchases are only 10% more than normal in any one month, add all those ten per cents together in any product chain and this represents a big risk," said Paul Hodges.

Chemicals companies face inventory losses if there is a crude-oil price correction. We believe such a correction will happen in H2.

But the chemicals companies who innovate for the future can attempt to look well beyond any one set of financial results, provided their investors have patience.

Such innovation needs to be around products that deal with the consequences of demographic changes in the West and surging consumption in emerging markets.

All the above are the big issues confronting not only the chemicals industry, of course, but the world economy as a whole. They should be at the forefront of discussions at this week's World Economic Forum in Davos.

By John Richardson

Yesterday we suggested that demographic challenges in the West, the strain on resources resulting from rising consumption in emerging markets and rising inflation should heavily feature in discussions at this week's World Economic Forum in Davos.

Chemical industry leaders who could be attending include Mohamed Al-Mady, CEO of SABIC, Andrew Liveris, CEO of Dow Chemical and BASF CEO Juergen Hambrecht, according to my colleague Nigel Davis at ICIS news.

My fellow blogger Paul Hodges is highly sceptical over whether one very well-recognised issue will be the subject of the right kind of debate at the great annual economics talking shop: Inflation, the main cause of which is the rise in the cost of crude oil.

The problem that the great and good at Davos, and everyone else, face is predicting the timing of any crude-related inflation bust as it will be sentiment-drive, added Paul.

"Supply/demand balances have been telling us for 18 months that there's too much supply, so trying to decide when sentiment and fundamentals might reconnect is an art, not a science," he continued.

"It might even be starting to happen now, in fact, as Saudi Arabia has made a fairly clear statement that it doesn't want prices over $100/bbl.

Set to keep the wild, drunken student party going?

Source of picture: benarnke.net

"Put this alongside China continuing to tighten, and by March, people might be starting to believe oil prices won't move up much further.

"If this became a general belief, as in July/August 2008, or Q1 1980, then procurement people will start the process of re-balancing their inventories, etc etc.

"But on the other hand, if Bernanke has another go at driving up asset prices and announces QE3, we could be off to the races again...."

Credit Suisse supports the view that there is a big overheating risk right now.

This evident from its newly-launched index that measures growth dynamics in the chemicals, energy, paper and packaging and transportation and shipping industries.

Click here to download a copy - CreditSuisseCSBasicMaterialsIndex.pdf

The index uses North American ethylene production and (naphtha) margin data and demand data for polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC), although the chemicals weighting in the index is low. This is again according to analysis by my colleague, Nigel Davis.

"The December estimate is consistent with the observation from recent real economic data that last summer's global slowdown scare is now turning into something approaching a global speed-up scare," writes the bank in its first index report.

By Malini Hariharan

As Asian markets head towards a quiet week, producers are probably hoping that developments in other regions will support their efforts to raise prices once trading resumes after the Chinese New Year holidays in the first week of February.

European producers successfully raised February ethylene contract price by Euro25/tonne while propylene moved up by Euro35/tonne just when outages tightened supply in the region.

Pic source: Axizon.com

Sabic's 660,000 tonnes/year cracker at Geleen in the Nethernlands was taken offline on Thursday because of technical problems. The company expects to restart the plant at the end of next week. And Dow Chemical's 590,000 tonnes/year cracker at Terneuzen in the Netherlands will be taken offline on 28 January for two weeks.

These cracker outages as well as, potentially, some possible problems at a couple of other sites, notably in Germany, were expected to exacerbate an already tighter-than-expected olefins supply situation, notes ICIS news.

Major polyethylene (PE) producers were targeting hikes in February with Dow looking at Euro100/tonne. PE prices had risen by €100-130/tonne in January.

In the US, two propylene producers have nominated a 3cents/lb ($66/tonne) increase in February contracts although a softening spot prices could fuel resistance from the polypropylene (PP) segment, which has seen margins disappear as monomer prices rose by 30% in January.

Ali Naimi, Saudi Arabia's oil minister, suggests more oil supply could be on the way

Source of picture: stonesoupstationblogspot.com

By John Richardson

CHEMICALS analysts at HSBC have added further weight to the argument that 2011 could well turn out to be a year of disappointment following the very high expectations set in 2010.

The financial results season is upon us with US analysts predicting significant full-year 2010 and fourth quarter gains for companies such as Dow Chemical, LyondellBasell, Georgia Gulf and Westlake.

An indication of just how high the bar has been set for 2011 has come through fourth quarter results already released by SABIC. Reliance Industries Q3 results for the quarter ending 31 December 2010 were also very good.

The chemicals analysts argue that supply constraints are set to ease slightly on a stronger European economy, resulting in more naphtha availability for cracking.

"Ethylene availability from European naphtha-based crackers dropped 20% below 2007 peak levels (in 2010) as a result of reduced naphtha supply," writes HSBC in a recent report.

As our fellow blogger Paul Hodges pointed out last week, Saudi Arabia is giving indications that it might pump more oil in order to tame surging crude prices. And if you click on this last link this also gives our view of the threat to chemicals posed by the rising price of oil.

Higher crude output would result in more associated gas for Saudi and other Middle East crackers. According to HSBC, Saudi crackers are currently running at only 80%.

Additional supply from existing crackers in Europe and the Middle East will therefore match demand growth in 2011, predicts the bank.

It also sees what we see: The extreme fragility of the argument that all is well with the world because of healthy emerging markets.

As a result, HSBC doesn't seem to quite buy into the Supercycle theory being expounded by Morgan Stanley and others.

"We are barely 18 months removed from one of the worst industry troughs in living memory," writes the bank, in the same report.

"Developed market demand for commodity chemicals is still well below the levels of 2007 with some major end markets, such as US autos and US housing, still at a fraction of their peak-activity levels.

"While emerging market demand remains robust, developed markets still account for 60% of the commodity chemical market by volume, and a sustained multiyear peak is unlikely as long as developed markets continue to drag, in our opinion."

Hear, hear.

By Malini Hariharan

Pic source: www.brandft.co.uk

The blog is in undertaking the difficult task of collecting demand numbers for polyolefins across major Asian markets. Preliminary estimates show that demand growth has been quite healthy in the two major markets - China and India.

Chinese polyethylene (PE) demand (measured as local production plus imports minus exports) rose 13% to 17.4m tonnes while polypropylene (PP) demand increased by 6% to 13.9m tonnes cementing the country's position as the largest polyolefin consumer and importer in the world.

Data from the Chinese customs showed that the country imported 1.384m tonnes of low-density PE (LDPE), 2.478m tonnes of linear-low density PE (LLDPE), 3.495m tonnes of high-density PE (HDPE) and 4.8m tonnes of PP in 2010.

Imports of LDPE and LLDPE increased by 3% and 13% respectively while inflows of HDPE dropped by 9% and PP by 6% as local producers expanded their market share following commissioning of new plants.

In India PP continued to shine with demand (measured as local sales plus imports minus exports) rising 18% to around 2m tonnes during April-December 2010, according to local industry estimates.

Demand for the fiscal year 2010-11 was expected to touch 2.6m tonnes, up from 2.2m tonnes in 2009-10.

"Raffia and biaxally oriented PP (BOPP) film were the key drivers. PP consumption in each of these two sectors has gone up by over 20% in 2010. New BOPP lines were commissioned; additionally polyester film prices doubled during the year helping BOPP film makers," explained a source from an Indian produce

The auto and appliances segment also supported demand for PP copolymer, he added.

The rapid expansion of the Indian PP market and the introduction of anti-dumping measures on product from Saudi Arabia, Singapore and Oman resulted in a decline in exports and imports.

PP exports for April-December 2010 were down 2% to 475,000 tonnes while imports dropped by about 18% to 250,000 tonnes.

The year saw also saw an expansion in Indian PE consumption HDPE demand up by about 7% at 1.1m tonnes while LLDPE rose 9% to 760,000 tonnes, estimated a source from a local PE producer.

But LDPE was the only exception as high prices and tight supply resulted in demand declining by about 5% to around 250,000 tonnes during April-December 2010.
"For the full year [2010-11] we expect HDPE and LLDPE to show 15% growth while LDPE will remain flat," the source added.