Grangemouthslide1

By John Richardson

FORECASTS of European capacity closures and project delays and cancellations have led some financial analysts to the conclusion that there will be a peak in ethylene margins from 2016 onwards.

This will provide a few years of very strong returns for the global industry before the big wave of US capacity comes on-stream post 2017, they argue.

We think that there is a significant risk that this period of peak earnings will not happen because:

  • European – and also Asian – capacity closures may not be as extensive as some people think, for reasons we discussed last week and shall debate in further detail in later posts (Grangemouth, by the way, as you might well be aware, has been saved). Further initiatives to save European cracker complexes might emerge over the next 12-18 months because of the wider economic implications of plant closures (see the above graphic from the BBC Scotland article we have just to linked, which summarises what the Grangemouth closure would have meant in this wider context).
  • We have seen much-bigger waves of new capacity over the 16 years we have been following the petrochemicals industry.And so, perhaps, there is another underlying reason why the industry players we have talked to are so worried about the start-up of the new capacity we are about to list below: DEMAND. 

“Borouge 3, due on stream in 2014, is expected to have more of an impact on the polypropylene (PP) market in Europe, but polyethylene (PE) is also planned to come from the huge new site,” wrote my ICIS colleague Linda Naylor, in this ICB article

“Located in Ruwais, Abu Dhabi, Borouge 3 will raise Borouge’s olefins and polyolefins capacity to around 4.5m tonnes/year from the current 2m tonnes/year. The project includes construction of a third ethane cracker, two additional Borstar PE plants, two additional Borstar PP plants and a low density PE (LDPE) unit.”

The giant Sadara project in Saudi Arabia – a joint venture between Saudi Aramco/Dow Chemical – also seems to be very much on track.

Sadara will have an 18-month start-up window from mid-2015,with ethylene and polyethylene (PE) being commissioned first followed ethylene oxide (EO) and propylene oxide (PO and finally polyols and isocyanates. The complex is expected to be fully on-stream by late 2016.

Upon project completion, Sadara will produce 210,000 tonnes/year of amines; 200,000 tonnes/year of glycol ethers; 70,000 tonnes/year of propylene glycol; 390,000 tonnes/year of polyether polyols; 400,000 tonnes/year of methyl di-p-phenilene isocyanate (MDI); 200,000 tonnes/year of toluene di-isocyanate (TDI); 750,000 tonnes/year of solution PE; 350,000 tonnes/year of low-density PE (LDPE); and 220,000 tonnes/year of elastomers, according to Dow.

The oversupply looks as it is going to be particularly bad in PE, given that, in addition to the capacities listed above, the ICIS Plants and Projects database also includes.

  •  The start-up by Gail (India) Ltd of 450,000 tonnes/year of LDPE at Uttar Pradesh in India in Q1 next year.
  • The ONGC Petro-additions Ltd (Opal) 340,000 tonnes/year high-density PE (HDPE), which is scheduled for commissioning In H2 2014.
  • Reliance Industries’ 400,000 tonnes/year LDPE project at Gujarat in India, which is due to come on-stream at end-2015.

And there is also the possible “wild card” of the ExxonMobil complex in Singapore.

Ever since the complex came on-stream earlier this year, unconfirmed rumours have persisted that operating rates have been well below 100%.

“Production will be stabilised eventually. Once this happens, I am worried about how the market will absorb all of the new ExxonMobil capacities – particularly its 1m tonnes/year of metallocene-grade LLDPE,” said a source with another producer.

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