INSIGHT: Japan petrochemical 2023 industry outlook sombre on Asia overcapacity

Pearl Bantillo


SINGAPORE (ICIS)–Japan’s petrochemical industry has a tepid outlook for the rest of the year amid continued weakness in China’s demand and the global economic slowdown, which coincides with rapid capacity expansion in Asia.

  • Cracker run rates hinge on China demand
  • Olefins oversupply to continue near term
  • 2022 petrochemical output falls

In the first half of 2023, Japanese crackers “are forced to run at low operating rates”, with expectations that a recovery in China’s demand will occur in the second half, according to a country report by the Japan Petrochemical Industry Association (JPCA) released on 5 June.

The report was prepared for the recently concluded 41st Asia Petrochemical Industry Conference (APIC) 2023 held on 18-19 May in New Delhi.

China’s rapid capacity growth in recent years amid poor demand has been shaking up Asian markets. The country is the world’s second-biggest economy and a major importer of petrochemicals.

Its aggressive push toward petrochemical self-sufficiency in recent years has turned it into a net exporter from a net importer of some products such as purified terephthalic acid (PTA) in Q4 2020 and polyvinyl chloride (PVC) in 2021.

China’s May economic data were downbeat with the manufacturing sector continuing to contract, based on official numbers, while both exports and imports shrank.

With domestic demand in Asia’s biggest economy remaining weak, more of its fresh petrochemical supply will have to find export outlets, augmenting regional supply at a time of poor demand.

China demand for olefins is not expected to recover until the second half of the year on expectations of a wider economic rebound ,JPCA said.

In the week ended 1 June, the northeast Asian ethylene market was being weighed down by expectations of higher regional supplies in the third quarter, and concerns that China’s economic recovery is losing its momentum.

Japanese crackers “are forced to run at low operating rates” H1 due to continued weakness in regional demand, it said.

In 2022, Japan’s ethylene output declined by 14.2% to a record low of 5.45m tonnes – lower than 2020 levels at the height of the COVID-19 pandemic, according to JPCA’s report.

Twenty petrochemicals mentioned in the report showed output contractions last year compared with 2021, with ethylene glycol (EG) recording the steepest fall of 34%, followed by styrene monomer’s (SM) 21% and acrylonitrile butadiene styrene (ABS) resins’ 19% fall, according to industry and government data. Half of them had double-digit declines in output volumes.

At the recently concluded 41st Asia Petrochemical Industry Conference (APIC), JPCA president Keiichi Iwata, who is also the president of Sumitomo Chemical, had said in mid-May that Japanese petrochemical plants have been running at an average rate of about 80% due to weak demand.

In the country report on Japan’s petrochemical industry, JPCA said that two domestic crackers were running at below 90% of capacity since August 2022.

Full-year 2022 production of five major plastics- low density polyethylene (LDPE), high density PE (HDPE), polypropylene (PP), polystyrene (PS) and polyvinyl chloride (PVC) – declined by 10.2% to 6.34m tonnes.

“As global economic growth forecast is very severe and a lot of new crackers startups are being scheduled in the region, olefins oversupply situation will continue in the short term,” JPCA said, adding that cost-competitive ethane-based ethylene cargoes from the US also flow into Asia, forcing Japanese cracker to run at reduced rates.

For 2023, JPCA is projecting flat growth in domestic and export demand for benzene, toluene and xylenes (BTX) due to planned shutdown of major derivative facilities and capacity expansion in other countries.

Japan is a major exporter of aromatics but its overall 2022 BTX production declined by 5% to 9.44m tonnes.

For xylenes, “although global demand for polyester is growing, the situation of excess supply capacity for paraxylene (PX) continues, and the demand growth for the main application, isomerization, is expected to keep at the same level as the previous year”, it said.

For styrene monomer (SM), Japanese producers may adjust output as a global oversupply is expected to continue, while for vinyl chloride monomer (VCM), local output is projected to be unchanged but exports are projected to grow from 2022 due to increased global demand for downstream polyvinyl chloride (PVC).

Japan’s SM exports last year slumped by 44% to 305,000 tonnes, production down 21%  at 1.54m tonnes due to delays in  post-pandemic recovery and the downturn in key downstream automobile and home appliances sectors, according to JPCA.

Growth in the world’s third-biggest economy is projected to accelerate slightly to 1.3%, according to the International Monetary Fund (IMF), after slowing down in 2022 to 1.0%  – barely half the pace recorded in the previous year.

In the first three months of 2023, however, the Japanese economy posted  a surprisingly strong growth of 2.7%, revised up from the initial estimate of 1.6%, official data showed on Thursday.

The outlook for the rest of the year, however, remains largely uncertain, with exports to take hits  amid the global economic slowdown due to  high inflation and interest rates.

Insight article by Pearl Bantillo

With contributions from Jonathan Chou and Samuel Wong


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