Price and market trends: Asia petchems must adapt, rise to industry challenges

26 May 2014 00:00 Source:ICIS Chemical Business

Asia’s petrochemical industry is expected to weather a slowdown in China’s economy, but will need to quickly adapt to the gas revolution in the US, and the poor naphtha economics in order to sustain global competitiveness, top industry officials said on 16 May.

Petrochemical consumption in the region is expected to post a 4.5-5% growth this year, but this hinges on the key China market, which absorbs most of Asia’s petrochemical exports, said Shri Karmal Nanavaty, vice president of the Chemicals & Petrochemical Manufacturers’ Association of India.

Asia chem plant APIC


Asia is facing a transforming petrochemical industry landscape with the surge in new capacity

“There is a real possibility of the Chinese economy faltering in the … short term. But there are indications that in such an eventuality, the Chinese government might come out with a large stimulus package to bail out the economy and to keep its growth engine chugging, he said.

“Even in the eventuality of a slowdown in the Chinese economy, our [Asia] industry is likely to be only marginally affected,” Nanavaty said.

Meanwhile, Asia is facing a rapidly transforming petrochemical industry landscape, with the surge in new production capacity based on associated gas from Middle East oil fields, shale gas from North America, and other natural gas, which offers improved cost competitiveness.

This “represents a major challenge to Asian petrochemical industries, which tend to rely on more higher-priced naphtha as their raw material,” said Yoshimitsu Kobayashi, the chairman of the Japanese Petrochemical Industry Association (JPIA).

“At the same time, we see this situation as a unique opportunity to pursue game-changing innovations, that is, build a new kind of high value-added petrochemical industry that shifts the axis in butane-butene fraction and aromatic compounds,” he said.

The emergence of these cost-advantaged products could weigh on profitability of Asian petrochemical firms, said Han-Hong Bang, chairman of the Korea Petrochemical Industry Association (KPIA).

“What we need in order to sharpen the competitive edge of Asian petrochemical industries is a production structure transformation toward petrochemical products with a clear advantage over commodities,” Bang said.

The regional industries must develop “production technologies that can boost cost competitiveness, while jointly investing in building local hubs that can secure raw materials and make inroads into overseas markets” he said.

Shale gas-based ethylene has a production cost of around $350/tonne – much less than the cost of producing traditional naphtha-based material that is estimated at $1,500/tonne. This is changing the way the industry is looking at its feedstocks, said Preston Chan, chairman of the Petrochemical Industry Association of Taiwan (PIAT). “In addition, ethylene production derived from coal or shale gas, or the methanol-to-olefins route, is also in progress. These changes present a big uncertainty for our industry,” he said.

Environmental concerns are also changing the way companies operate, and petrochemical players will need to further ingrain sustainable initiatives in their businesses in the face of resource scarcity and climate change, said Ekarat Thongtawach, chairman of the Petrochemical Club, Federation of Thai Industry (FTIPC).

“The industry sector is prejudicially framed as one of the culprits who exploits the environment and the source of climate change, he said.

“Plenty of consumers have pressured the industry to shift towards more environmental[ly] friendly approaches by developing new technology both for the production processes and the finished products,” Thongtawach said, adding that bio-based resins is a good example of how products could have a lower carbon footprint and yet manage to serve the demands of the market.

By effectively using a multitude of carbon resources and promoting energy saving and renewable energy usage, the petrochemical industry should be able to reduce its dependence on fossil resources and contribute to sustainability in the global environment, JPIA’s Kobayashi said.

“That, I believe, is our responsibility as members of the petrochemical industry,” he said.

The industry executives were speaking at the Asian Petrochemical Industry Conference in Pattaya, Thailand, which ran on 15-16 May.

By Nurluqman Suratman