Europe weighs impact of Sadara start-ups

Several European chemical markets have been anticipating news of the Sadara plant start-ups, which are coming on-line in a staggered fashion.

Each market is waiting to see what impact the additional capacities will have on domestic supply and, ultimately, on prices in Europe. The latest market to mull over the long awaited announcement of the Sadara plant start-up in Jubail is European glycol ethers (EGE), as spot prices could be under pressure due to the additional capacity.

In the week ending 23 June, European butyl glycol (BG) prices were assessed within a wider range with a decrease of €20/tonne at the low end of the range and stable at the high end, bring prices to €1,160-1,250/tonne FD (free delivered) NWE (northwest Europe). Butyl di-glycol (BDG) prices were assessed stable-to-soft, with a decrease of €20/tonne at the high end and stable at the low end, bringing prices to €1,340-1,400/tonne FD NWE.

With the expectation of feedstock decreases upstream and weaker crude and naphtha values, some market players anticipate downward pressure in the spot market next month. EGE prices have been tracking at higher levels compared to the previous year and players are also contemplating price declines due to the increased volumes set to enter the market.

Sadara Chemical Company, which is a joint venture between US Dow Chemical and Saudi Aramco, announced on 8 June it was starting commercial production of BG at a new plant in Jubail. The Sadara butyl glycol ethers plant produces multiple grades of liquid derivatives including butoxy glycol ether, butoxy di-glycol ether, butoxy tri-glycol ether and butoxy poly glycol ether.

EGE market participants in Europe said recently they do not expect product from this site to appear in the European market until July at the earliest. Some added that even when product begins to arrive, it may take xyzzsome time for volumes to reach sufficient levels to have an impact on market conditions.

An EGE buyer also added that it expected a greater impact on the market in 2018.

Due to the traditional slowdown in demand expected over the summer months in Europe, there is a view that if volumes were to enter in July, this could have an impact prices.

One source said that it already views the EGE market in Europe as long in terms of supply, adding that Europe has been a net exporter of the material.

Market sources have already mentioned that imports from the US into Europe are expected to lessen which could balance market supply when material from Sadara becomes available later in the year. There is also some expectation that the volumes will head for Asia, and there are concerns surrounding oversupply in that region.

SADARA PE OFFERED

Polyethylene (PE), on the other hand, has been running at the Sadara site for a number of months now, and several buyers said they were now being offered spot volumes of several grades of linear low-density PE (LLDPE) from the site. Low density PE (LDPE) supply seems to be less available, they added.

The Sadara capacity is large – 1.1m tonnes/year of PE, with 350,000 tonnes/year of LDPE and a 750,000 tonnes/year LLDPE/high density polyethylene (HDPE) swing facility, which largely started up in the fourth quarter of 2016.

In the long term, this supply is destined for Asia, but European buyers hope to be able to get some of the material once new North American capacity also starts to come on stream during the latter part of 2017.

In other markets, the additional capacity could provide some respite after prolonged tightness in supply.

For example, Sadara has already started up its polymeric methylene diphenyl di-isocyanate (PMDI) facility in Jubail, according to an earlier announcement this month. Some participants in the crude MDI market expect the Sadara complex to bring relief to tight supply conditions that have developed in Europe. Following multiple production issues in April and May 2017, crude MDI in Europe has become difficult to obtain.

“[The] situation should remain tight until October once all the plants will be [back] on stream, including Sadara,” a trader said in May.

However, others have questioned the effect Sadara will have on the European crude MDI market, leaving a mixed opinion among crude MDI sources on the site’s impact.

“I do not think Sadara material will come to Europe. Why should they ship to high costs to Europe when they could sell it in the region of Saudi Arabia… at higher prices?” said another trader in May.

“I assume no Sadara or less Sadara material will come here to Europe… the effect will be that material from Europe will not be exported, this material will stay in Europe.”

Although some markets have already seen the impact of the new Sadara production, such as in the PE market, other European derivative markets anticipate differing impacts on supply and, ultimately, on prices. Nonetheless, Europe is likely to gain a clearer outlook on how the additional volumes will impact each market in autumn.

Additional reporting by Linda Naylor and Pavel Popovic