US Threat To Asian Polyolefins

So far so good…lack of arbitrage in 2012

USAsiaC2PricesJan92013.pngBy John Richardson

Despite a strong recovery in China’s polyethylene (PE) prices and sales over the last month-and-a-half, producers are viewing the coming year with great trepidation.

One of the wild cards is how the US producers behave in 2013, as we also discussed in November.

Faced with weak demand in their own market as a result of a failure to negotiate an increase in the debt ceiling, will US producers seek to export their way of out of difficulties?

While the Middle East sharply increased PE exports to China in January-October on new start-ups and more stable production at plants brought on-stream in 2010-2011, North American Free Trade Agreement exports declined by 42% on US production losses and a stronger home market.

“That pretty much saved us. I am worried about this year, though, as, of course, US producers have a big feedstock advantage,” said a Singapore-based source with a global producer. 

My colleague Nigel Davis, in this ICIS news Insight article, neatly summarised the US outlook when he wrote “Olefins prices in the US rose towards the 2012 year end on a series on unplanned cracker outages.

“And planned maintenance shutdowns in the first months of 2013 are expected to underpin the higher prices.

“(But) North America’s ethylene producers are planning significant new capacity additions to take full advantage of increased ethane supplies from shale gas extraction and a mood of optimism prevails in the sector.

“In 2013 more than 2bn pounds (more than 900,000 tonnes/year) of ethylene capacity will be added to the US total (a significant proportion of which could be turned into PE).

“This 3.3% increase in the US ethylene capacity total is expected to help stabilise prices which fluctuated wildly in 2012, as the impact of numerous scheduled maintenance shutdowns was amplified by a string of unplanned outages.

“Cracker operators are keen to take full advantage of North America’s ethane advantage which has put the region second only to the Middle East in terms of feedstock cost competitiveness.

“Capitalising on that advantage, however, is causing disruption in a low demand-growth environment.

“US cracker operating rates have been estimated at 85% in 2012 compared to closer to 92% in 2011 but rates could push back up to above 90% this year with fewer turnarounds putting some downward pressure on prices.”

If the US does export bigger quantities of PE to China, the losers will, of course, be the higher-cost naphtha cracker operators in Northeast and Southeast Asia.

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