Asia ethylene supply likely to remain ample in H2 2017

SINGAPORE (ICIS)–Northeast Asia’s spot ethylene prices have fallen to near 17-month lows at the mid-year mark due to a supply overhang in the region, with market players expecting product availability in Asia to remain ample in the second half of 2017 despite growing demand in China.

Import prices closed the week of 5 June at $935/tonne CFR (cost and freight) NE (northeast) Asia for end-June to July-arrival cargoes, after falling for seven weeks. The price level is also a long climb down from the year-to-date high of $1,345/tonne CFR NE Asia in mid-February.

On 16 June, the weekly prices were unchanged from the previous week at $935/tonne CFR NE Asia.

The market have come under intense selling pressure after a strong first-quarter, mainly due to plentiful supply from both Asian and non-Asian sellers.

While margins for standalone derivative plants outside the polyethylene (PE) sector strengthened later in the second quarter, helped by a rebound in downstream pricing and sharply lower feedstock ethylene costs, ethylene sellers struggled to stabilise prices in an oversupplied market.

Exports from southeast Asia to northeast Asia have been brisk since March. Some southeast Asian producers are understood to have scaled back on their underperforming PE operations, while others have surplus tonnage on the back of derivative plant maintenance shutdowns and production issues. The restart of ExxonMobil’s 1m tonne/year cracker in Singapore in the second half of May from maintenance boosted supply as well.

A spate of downstream plant issues at integrated complexes in Japan, South Korea and Taiwan during late May to June added to the headwinds. The affected producers shipped out more spot and term tonnes for June- to July-loading, with the bulk of the supply heading to the key China market.

Separately, over 60,000 tonnes of cargoes from the Americas and Europe are scheduled to be delivered to Taiwan and China in June to July. The bulk of the supply is heading to Kaohsiung, Taiwan, and this has limited the outlets in the country for spot tonnes.

The supply overhang was exacerbated by rising supplies from the Middle East following the completion of a series of cracker turnarounds and due to downstream production issues at integrated complexes.

Nearly 15,000 tonnes were delivered from the UAE to Indonesia at the end of May and early June. The producer resumed exports temporarily, possibly because of downstream production issues. It stopped regular exports after a fire at its residue fluid catalytic cracker (RFCC) in January.

A Saudi producer is looking to ship more cargoes to term lifters in Asia from June onwards, in line with increased production that follows the completion of the spring cracker turnaround period.

Looking ahead, traders and end-users expect Asia to remain well-supplied in the second half of the year on the back of regional capacity expansions and the weak PE market.

India’s Reliance Industries Ltd (RIL) and Korea Petrochemical Industry Co (KPIC) in South Korea are poised to become regular exporters in the third quarter.

KPIC completed at the end of May/early June a project to add 330,000 tonnes/year of ethylene capacity to its 470,000 tonne/year cracker, although the plant has not yet attained on-spec production as of 16 June due to technical issues.

Meanwhile, Reliance is debottlenecking three of its crackers by a total of 200,000 tonnes/year between end 2016 and June 2017. Both RIL and KPIC were structurally balanced-to-short prior to the expansions.

Separately, Lotte Chemical Titan is bringing on line a catalytic cracking unit with an ethylene nameplate capacity of 90,000 tonnes/year at its Pasir Gudang complex in Malaysia. This will lessen the reliance of the company’s Indonesian PE operations on ethylene imports.

“Sellers in southeast Asia and outside Asia will need to push more volumes into China,’’ a trader said.

The weak PE market could continue to drive ethylene exports from southeast Asia in the second half of the year. The prospects for the polymer sector are somewhat pessimistic in view of the strong capacity expansions in India and the US.

Ethylene supplies from the Middle East and Europe could see an increase in the second half of 2017 now that the major second-quarter cracker turnaround period is over.

Markey players, however, are still working out how the diplomatic rift between Qatar and its Gulf Arab neighbours will impact the overall ethylene balance in Asia.

A Saudi producer that used to ship one to two cargoes to Qatar every quarter will likely push more volumes into Asia. However, this increase in supply could be somewhat offset by exports from Asia to Qatar.

From a pricing and location perspective, southeast Asia and India are seen as the best candidates to fill the supply void in Qatar and it is understood that some traders are working on shipments from Singapore to Mesaieed for June loading.

On demand in China, players are expecting the upcoming start-up of a 500,000 tonne/year styrene monomer (SM) plant to give a further boost to the country’s import appetite in the second half of the year.

China bought more than 790,000 tonnes of ethylene during January to April, up 70% from the same period a year ago.

“[The] market will hopefully tighten up in Q4 when the new plant comes up,” a producer said.

 

Focus article by Yeow Pei Lin