Asian Operating Cuts Not Enough



By John Richardson

ASIAN naphtha cracker operators have cut production in response to the exceptionally weak China market, according to ICIS.

Yeochun Naphtha Cracker Centre (YNCC) has, for instance, lowered operating rates to 90 percent from 100 percent at its three crackers in Yeosu. South Korea, from the end of May. The total capacity of its three crackers is 1.9m tonne/year.

The last time YNCC had cut production was during the global financial crisis in late 2008, added ICIS.

And in May, Taiwan’s Formosa Petrochemical Corp cut the operating rate of its three naphtha crackers in Mailiao to 80 percent from 90 percent.

But when you still hear senior sales and marketing executives with Asian polyolefin producers talking as if this is just a brief tactical retreat by Chinese buyers from the market, one wonders whether some companies are sufficiently prepared for the hard times ahead.

A couple of weeks ago, it dawned on the blog just how serious conditions have become following a discussion with a sales and marketing executive who works for a Western polyolefin producer.

He described how business confidence had declined in China, resulting in reluctance among small and medium-sized enterprises to borrow money.

This suggests to us that unless confidence can be restored, the much-discussed new round of economic stimulus will have a limited effect. In our 15 years of covering the petrochemicals industry, we cannot recall a previous occasion when China’s downstream industries lacked the conviction to borrow money.

And returning to the supply side of the story, operating issues in Saudi Arabia prevented the country’s cracker complexes from running at high rates during Q1, said an industry observer.

These issues included a power failure at the Al-Jubail site in late January.

“Production was down by only a few percentage points in the first quarter, but, when you are as big a producer as SABIC, that is a lot of lost volume,” he added.

If these problems are resolved, more shipments from the region to the key China market might well be the result, exerting further pressure on the Asian producers.

More volumes are also expected to soon hit the market from polyolefin start-ups in Saudi Arabia and Qatar.

The Saudi Polymers plant in Saudi Arabia was scheduled to be on-stream by the end of May. This comprises two 550,000 tonne/year high-density polyethylene (HDPE) plants and a 440,000 tonne/year polypropylene (PP) facility.

QAPCO was due to bring on-stream a 300,000 tonne/year low-density PE (LDPE) facility in Qatar by the end of May.

“We expect production at the QAPCO plant to be ramped up over a six-week period from early June,” said the observer.

And Saudi Kayan Petrochemical Co’s 300,000 tonne/year LDPE plant is scheduled to start-up in Saudi Arabia in Q3.

ExxonMobil is also due to commission its two new 650,000 tonne/year metallocene grade linear low-density (LLDPE) plants in Singapore in 2012, with some of this capacity already on line, said ICIS.

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