NE Asia ethylene prices fall again; near-term downstream outlook weak

Author: Yeow Pei Lin

2020/02/14

SINGAPORE (ICIS)--Northeast (NE) Asian ethylene prices extended losses due to lower Chinese demand amid widespread downstream production cuts.

The near-term outlook remains bleak. It could take some time for downstream activity in China to normalise even as businesses have resumed operations progressively from 10 February after an extended holiday.

Companies in China need to seek the approval of local authorities to restart plants and deliver products to customers by trucks following the deadly outbreak of coronavirus (Covit-19) that has claimed the lives of over 1,300 people with nearly 60,000 infections confirmed in the country.

Truck movements between provinces remain restricted. Some cities and provinces require incoming vehicles from other parts of the country to obtain prior permission.

Trucks with number plates and/or drivers from provinces with high infection rates are barred from entering many cities and provinces.

Returning migrant workers will have to fulfill quarantine requirements of around two weeks, contributing to the shortage of drivers and production operators.

With sales remaining slow, key ethylene buyers are continuing to cut production this week in order to manage their product inventory.

Sanjiang Fine Chemicals shut a third ethylene oxide (EO) line this week, leaving only two of five plants still in operation. It has four EO facilities totalling 320,000 tonnes/year and a 380,000 tonne/year monoethylene glycol (MEG) plant.

Another EO maker lowered output further to 65% this week from 80% and may double the duration of an upcoming turnaround next month to two weeks.

Far Eastern Union Petrochemical Yangzhou (FUPY) cut operating rates at its 500,000 tonne/year monoethylene glycol (MEG)/EO facility to 90% from 100%.

SM production of companies like Shandong Yuhang Chemical and Anhui Haoyuan Chemical have remained curtailed by a shortage of feedstock and high product inventory.

Ethylene buyers are taking a conservative approach to feedstock procurement, given their uncertain production.

Some have suspended spot buying, while others purchased minimum quantities for second-half February and March delivery.

On a brighter note, suppliers have not received requests from buyers to delay shipments that were booked prior to the holiday.

Spot demand outside China is currently sluggish as well.

Buyers in Taiwan are cautious about building their inventory amid concerns over the faltering Chinese economy.

Some SM makers will cut output after downstream styrenics exports to China have been hit by the virus outbreak.

Spot demand in coming weeks will be centred on April supplies.

Companies have already secured sufficient feedstock for March delivery in the lead-up to CPC Corp’s No 3 cracker turnaround that commenced this week.

The domestic production loss will be offset to a large extent by downstream turnarounds and an upcoming shutdown of CPC’s ethylene pipeline.

In Japan, buyers have yet to finalise downstream production plans for March but a slowdown is expected as companies typically minimise inventory at the end of the fiscal year.

Fresh demand from South Korea emerged. A buyer sought one lot for March delivery, drawn by the lower spot prices.

On the supply front, producers in China and other northeast Asian markets are grappling with high inventory in the aftermath of the contagion.

Several Chinese producers lowered polymer output in a bid to manage their mounting stockpiles and this has in turn led to higher ethylene inventory.

For a certain producer, the ethylene build-up was exacerbated by technical issues at a MEG storage facility.

Another producer faced difficulty supplying customers because of roadblocks.

Some of these companies sought to offload cargoes for February and March loading but trade was hampered by domestic vessel constraints and tepid end-user demand.

Against a backdrop of weak ethylene sales and slowing downstream production, several producers have reduced operation at their plants to 60-90%.

Production in March may remain at reduced levels in view of the widespread cuts in domestic crude processing rates, which will result in lower supply of naphtha to petrochemical plants.

In Korea, some companies are lowering cracker run-rates amid tepid Chinese demand for ethylene and downstream products.

Cuts in polyethylene (PE) and styrene monomer (SM) output will be implemented in mid-February or early March onwards, due to slumping exports to China and poor margins.

A producer will also be lowering PE production to facilitate tests for grade changes.

The affected companies have opted to make a corresponding adjustment to their ethylene production instead of raising exports because of limited receivers in China and as sharp falls in olefins prices have led to concerns over squeezed margins.

LG Chem will cut operation at its Yeosu cracker and is planning for a reduction in its Daesan unit’s output. Yeochun NCC (YNCC) is bringing forward plans for minor maintenance works at its No 2 cracker from the second quarter to March.

Another Korean producer is considering to reduce its operating rates to possibly 95% later this month.

Over in Japan, production could see a slowdown by March if suppliers opt not to raise exports while PE output falls.

Domestic demand for PE is currently sluggish and inventory high. The situation is unlikely to improve in March, which marks the end of the fiscal year.

PE consumption could also be affected by the disruption in supply chains in the auto industry as a result a shortage of parts from China.

Spot ethylene  traded at $740-770/tonne CFR (cost & freight) northeast (NE) Asia this week, down by around $40-60/tonne from the previous week.

ICIS Editorial Chart goes herePhoto by WU HONG/EPA-EFE/Shutterstock (10550439f)
Chinese paramilitary police officers wearing face masks stand outside the headquarters of the People's Bank of China in Beijing, China

Focus article by Yeow Pei Lin

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