Asia’s olefin margins weaken vs Europe, USA

C2 margins Feb11.pngThe ICIS weekly margin reports continue to provide essential reading for anyone in the petrochemical value chain.

The above chart is particularly fascinating, as it highlights the significant differences between cracker margins on a regional basis over the past 2 years:

Europe (red column) is the clear winner over the period. Its margin bottomed at $200/t in H1 2009, and then doubled to $400/t in H2. It then rose steadily to peak at $600/t in Q3 2010, before slipping back to $300/t in Q4.
• These are astonishing results by historical standards, and particularly in the light of its low operating rates (OR%). They are explained by the relative strength of co-product prices for propylene and butadiene, and the tight feedstock position created by low refinery OR%.

• The USA (blue) did less well in 2009, but 2010 saw a strong performance due to the arrival of lower ethane prices, as shale gas production increased. Remarkably, the US is now much closer to the Middle East’s (ME) ‘advantaged feedstock’ position. And it further benefits from being able to maximise output, whilst OPEC quotas on crude oil restrict ME ethane supply.

NE Asia (yellow) is clearly the weakest region. In 2009, only Q3 saw a margin above $200/t, and it was again back below this level by Q4 2010, after a better H1. It is being hit, as the GTIS trade statistics highlighted recently, by increased low-cost polymer imports from the ME and the USA.
• In addition, as forecast by the blog in August, China is now running its new refinery capacity hard. This combination caused margins to drop again to the $100/t level by Q4 2010, even though as a naphtha-based region, it also benefits from co-product credits

ICIS’ Paul Ray tells the blog that so far in 2011, naphtha-based producers with feedstock flexibility are benefiting from relatively weak naphtha prices and lower LPG levels. And at the same time, Q1 margins have strengthened for both ethylene and polyethylene versus Q4. Thus European margins are again leading the field, even though US ethane margins remain strong.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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