OUTLOOK ’15: Asia ethylene’s demand-supply balance to remain tight

By Yeow Pei Lin

SINGAPORE (ICIS)–Asia ethylene’s demand-supply balance is expected to remain tight in 2015 despite a lighter cracker turnaround schedule, players said.

Supplies are expected to be curtailed by reduced exports from South Korea on the back of new downstream projects as well as the closure of uncompetitive crackers in northeast Asia. 

In addition, import demand from China – Asia’s largest market – is expected to be supported by derivative expansions.

There are at least 14 crackers that are slated for maintenance in 2015 versus 21 cracker turnarounds this year.

The heavy 2014 turnaround schedule, particularly in Japan was instrumental in pushing up CFR (cost & freight) NE (northeast) Asia spot prices to multi-year highs of above $1,500/tonne CFR NE Asia in the third quarter.

But the more moderate 2015 turnaround timetable is unlikely to bring any significant reprieve for buyers, players said.

This is mainly because South Korea is expected to have limited volumes to export in 2015 amid rising domestic consumption, they said.

South Korea’s ethylene shipments have already started to fall from this year following the start-up of new derivative units.

The new plants include Samsung Total’s 240,000 tonne/year ethylene vinyl acetate (EVA)/low density polyethylene (LDPE) tubular plant that came on stream in February, and SK Global Chemical’s 230,000 tonne/year metallocene linear low density polyethylene (MLLDPE)/polyolefin elastomer (POE) swing plant that commenced operations in May.

As a result of the increased domestic consumption, South Korea’s 2014 ethylene exports may fall below 1m tonnes, from 1.12m tonnes in 2013, sources said.

The export situation is unlikely to improve in 2015 as more derivative projects will start between the end of 2014 and 2015.

Korea Petrochemical Industry Co (KPIC) plans to trial operations at its ethylene glycol (EG)/ethylene oxide (EO) swing plant in Onsan at the end of  this year, followed by commercial operations in January, according to a source close to the company.

When fully operational, the plant will be able to produce 200,000 tonnes/year of EG.

Separately, YNCC will be reducing its  exports because of new captive consumption at its OCU and increased demand from pipeline customers such as Kumho Polychem that will have a 60,000 tonne/year ethylene-propylene-diene monomer (EPDM) joint venture unit operational in 2015.

Japan’s exports in 2015 may be largely unchanged from the 2014 level even though most crackers have completed their turnarounds this year. 

This is because Sumitomo Chemical will shut its 415,000 tonne/year cracker in Chiba permanently in May 2015, adding to the capacity losses from the mothballing of Mitsubishi Chemical’s 392,000 tonne/year Kashima cracker in May this year. 

Companies in Japan have been restructuring their operations in a bid to strengthen their competitiveness against a backdrop of weak domestic demand, and rising capacities in China and the Middle East.

But sources do not expect the country’s exports to see any major decline as the cracker shutdowns will be accompanied by a similar consolidation process at downstream facilities. There will also be some cracker expansions in Japan, they noted.

Mitsubishi Chemical will increase the ethylene capacity at its 500,000 tonne/year Mizushima cracker by 70,000 tonnes/year during a turnaround in the second quarter of 2015, ahead of the merger of its cracker operations with Asahi Kasei in 2016.

Earlier this year, the Japanese producer completed a 50,000 tonne/year expansion at its Kashima plant to 539,000 tonnes/year after the closure of its smaller cracker at the same site.

Taiwan’s domestic demand-supply balance is expected to tighten next year as state-owned CPC Corp may not resume operations at its 500,000 tonne/year No 5 cracker at Kaohsiung.

The company has no restart date for the facility that was taken off line in late April for maintenance, sources said.

The prolonged shutdown at the unit is the result of an ongoing review by the company to bring forward the permanent closure of the unit from end-2015.

Meanwhile, in China, import demand is expected to grow on the back of new derivative operations, suppliers said. 

The new projects include Oxiranchem Yangzhou’s 200,000 tonne/year ethylene oxide (EO) plant and Oriental Union Chemical Corp’s (OUCC) EO/ethylene glycol (EG) swing plant with a EG capacity of 500,000 tonnes/year.

Both facilities, which are located in Yangzhou are scheduled to start up between the end of 2014 and the second quarter of 2015.

In the vinyl chloride monomer (VCM) sector, Qingdao Haijing Chemical Group will have a 300,000 tonne/year plant starting up in Qingdao at the end of the first quarter of 2015.

But ethylene  consumers are cautious as they expect the performance of the petrochemicals industry to remain generally weak amid rising domestic capacity and tepid economic growth in China. 

New projects may face delays and existing facilities could continue to operate at reduced rates, they said.

In the key polyolefins sector, China’s coal-based polypropylene (PP) and polyethylene (PE) capacity is expected to hit 5.96m tonnes by the end of the year, a sharp surge from 2.16m tonnes/year in 2013.

The sentiment of producers in the over-supplied styrene monomer (SM) market is similarly bearish following this year’s dismal performance. 

“Our margins and sales were bad for most of this year; plants have been running at low levels. This situation may continue next year,’’ a styrene monomer (SM) maker said.

The biggest uncertainty going into 2015 stems from the recent price collapse in the  global crude market, which has led to large declines in Asia’s petrochemical prices.

Buyers in the ethylene and their derivative markets are generally minimising their stock in view of the volatile oil prices.

“The start of 2015 will be bearish. The whole market is slowing down – no one dares to hold any stock and this will probably continue until after the Lunar New Year in February,’’ a Chinese PP maker said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections