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Operating rate cuts the only option

China, Europe, Markets, Olefins, Polyolefins, South Korea, Taiwan, Thailand
By John Richardson on 03-Nov-2011

By Malini Hariharan

News of operating rate cuts is pouring in. Crackers in Japan, Taiwan and parts of southeast Asia have been running at reduced rates of 80-90% in October. But now there is also talk of rate cuts at crackers in South Korea.

More importantly, a Sinopec source confirmed yesterday that the Chinese major would be running its crackers at around 90% in November, down from an average 95% in October, writes the Peh Soo Hwee on ICIS news.

The company operates 13 crackers either on its own or through joint ventures.

Besides weak markets the rate cuts are also because Sinopec is under pressure to increase production of diesel which is running short in China. The company will be producing more diesel at its refineries which would result in lower production of naphtha and other middle distillates.

The cuts come at a time when naphtha-based ethylene margins in northeast Asia entered into negative territory for the first time since October 2009.

And the rate cuts are also extending to polymer plants.

Korea Petrochemical Industry Co has already decided to cut production at its polyethylene (PE) and polypropylene (PP) plants because of squeezed margins.

In Thailand, PTT Global Chemical is said to be considering shutting a 400,000 tonnes/year linear low density PE (LLDPE) plant for two weeks because of weak domestic demand.

Producers in Europe too are on the same road.

Ineos will be joining Dow Chemical to run all its low density PE (LDPE) and LLDPE plants at minimum rates for the rest of the year, reports Linda Naylor on ICIS news. Production of high-density PE (HDPE) will also be cut to ‘meet the reality of demand’, said a company source.

Whether these operating rate cuts in Asia and Europe will be sufficient to push markets into balance remains to to be seen.