By Malini Hariharan
With naphtha crossing $1000/tonne yesterday Asian petrochemical producers reliant on this feedstock remain caught in a tight spot. Costs are continuously rising while market direction for key derivatives is uncertain.
Ethylene and propylene prices are holding firm at around $1,350/tonne CFR Northeast Asia and $1,500/tonne CFR Northeast Asia respectively, supported by a cracker outages and upcoming turnarounds in South Korea and Japan. And aromatic prices are tracking developments in upstream markets with benzene at around $1,180/tonne FOB Korea.
But the Chinese polymer market continues to trouble producers. As explained by the blog earlier, demand is weak as credit tightening has affected traders and end-users.
"It is a difficult market. Looking at crude oil and naphtha, we need a price increase of over $100/tonne for polypropylene (PP) in April; but we will probably have to start with $30 and if successful, ask for more. The big constraint is weak Chinese demand," explained one South Korean producer.
As for polyethylene (PE), he thinks it is better to forget exports and instead focus on the Korean domestic market.
His only hope is that turnarounds in Q2 will keep supply tight. Additionally, spiraling naphtha prices should force at least some Asian producers to cut output. And eventually, the sentiment of rising crude oil prices should trickle down to the polymer markets.
Crude oil prices declined by a few dollars yesterday after news emerged of a possible peace plan for Libya. However, the situation is still very fluid and there is every possibility for a rebound.
Not surprisingly then, some cracker operators are looking at propane/butane as an alternative to naphtha. The Saudi Aramco March contract price for propane is at $820/tonne FOB Arabian Gulf while butane is priced at $860/tonne FOB Arabian Gulf.
The premium on spot propane is now $15-20/tonne but the delta is still lucrative, pointed out one industry source.
While Asian naphtha-based producers are struggling, their counterparts in the US are well placed.
In a recent report Alembic Global Advisors sees a scenario beneficial to US ethane-based producers.
"US ethane based producers would continue to enjoy very healthy margins benefiting from the pricing umbrella provided by high cost naphtha based producers. It is worth noting that if crude oil prices continue their ascent the US ethane based cost advantage may widen further."
As a rule of thumb if natural gas prices remain flat while crude oil prices rise by $10/bbl, US ethane based ethylene margins should expand by around $120 per tonne, the analysts estimated. And the key beneficiaries would be Dow Chemical, LyondellBasell and Westlake Chemical.