INSIGHT INTERACTIVE: China’s ethylene import demand may see close to double-digit growth in 2017

18 July 2017 16:42 Source:ICIS News

By Yeow Pei Lin

SINGAPORE (ICIS)--China’s ethylene import demand is on track to see healthy growth in 2017 due to rising downstream capacities, strong derivative activity and more competitively priced ethylene supply.

Shipments to the largest Asian market rose by 48% year-on-year to more than 897,500 tonnes during January-May this year.

Imports for the full year could reach 1.8-1.9m tonnes, from 1.66m tonnes in 2016, according to market players.

Suppliers to China are benefiting from the start-up of two non-integrated downstream projects in the fourth quarter of 2016. Qingdao Haijing’s vinyls complex and Abel Chemical’s styrene monomer (SM) plant boosted ethylene consumption by up to 260,000 tonnes annually.

Demand will rise further when Qingdao Soda Ash Industrial brings up its standalone SM plant by October. The plant will require 150,000 tonnes of ethylene annually when operating at full capacity.

China downstream projects, Q4 2016-2017

Company

Location

Product

Capacity(’000 tonnes/yr)

Start-up schedule

Qingdao Haijing 

Qingdao, Shandong

VCM/PVC/EDC

400/400/300

Q4 2016

Abel Chemical

Taixing, Jiangsu

SM

250

Nov-16

Qingdao Soda Ash Industrial Co

Qingdao, Shandong

SM

500

Sept/Oct 2017

Total new ethylene consumption

 

410

China’s first-quarter ethylene import figures were high amid pre- and post-Lunar New Year restocking activity, with the purchases in January totalling over 200,000 tonnes.

A price rally across several key downstream markets from November 2016 through to February 2017 bolstered the sentiment of end-users. And buyers secured large quantities of ethylene for delivery in January and February on expectations that the prices of their products would benefit from increased downstream demand after the holiday ended in early February.

Buying momentum waned when downstream markets turned unexpectedly bearish between late February and mid May.

Margins of companies in such sectors as SM and monoethylene glycol (MEG) weakened despite lower feedstock ethylene costs, which did not adequately offset the decline in downstream prices in the period up to the first half of May.

Derivative plant turnarounds also impacted consumption. The monthly ethylene imports in April and May went below 165,000 tonnes.

The import data for June, which is due out later this month, is expected to record a month-on-month increase.

Chinese end-users stepped up on their restocking activity from the second half of May onwards, when ethylene prices plunged, while prices for derivatives such as SM and MEG rebounded. A large number of shipments were scheduled for second-half June to first-half July delivery. 

Spot ethylene prices in northeast Asia fell to a near 17-month low at $935/tonne CFR (cost and freight) NE (northeast) Asia in early June and have since been largely range-bound, amid plentiful supply from both Asian and non-Asian sellers.

Large quantities of ethylene were exported from southeast Asia during March to early July, owing to a combination of the weak polyethylene (PE) market conditions as well as derivative plant maintenance shutdowns and production issues.

The supply surpassed demand from the key Indonesia market where consumption was crimped by derivative shutdowns – both planned and unplanned.

Southeast Asian producers, faced with increased competition from producers in the Middle East, have had to seek alternative outlets in China as well. Middle East producers upped their shipments to Asia from May following the completion of a series of cracker turnarounds and due to downstream maintenance and production issues.

A Saudi producer also diverted supplies to Asia after it suspended shipments to Qatar, now the target of a Saudi-led blockade. Indonesia is a key outlet for such Middle East supply.

In the first five months of the year, cargoes from southeast Asia made up around 16% of China’s total imports, up from a 6% share for full year 2016.

Meanwhile, downstream conditions in China have improved since May, giving further impetus to end users to ramp up production.

The largest turnaround took place in MEG, aided by production issues and restocking activity in the downstream polyester sector.

MEG prices reversed direction in the second half of May and eventually hit a 20-week high of $846.50/tonne CFR CMP (China Main Port) in the week ended 14 July. Margins of standalone MEG makers also turned positive in the second half of May.

The SM market similarly strengthened from the latter half of May. There was a drawdown in port inventory in east China leading up to the manufacturing-for-exports season in the third quarter.

Production issues in China following a petrochemical jetty accident in the first half of July provided a further upward lift to prices.

The Chinese ethylene oxide (EO) sector outperformed other downstream markets in the second quarter due to turnarounds at the facilities of a few key domestic producers.

China MEG margin July 2017
China SM margin July 2017
China EO margin July 2017

Downstream activity in China is expected to remain strong in the months ahead if the current spreads between derivative prices and feedstock ethylene costs remain sufficiently wide.

Continued healthy Chinese demand will help to absorb the additional supply from South Korea and India where two producers are turning into net exporters after their cracker expansions.

Korea Petrochemical Industry Co (KPIC) is set to begin regular exports in August after expanding its cracker by 330,000 tonnes/year to 800,000 tonnes/year in ethylene capacity.

Reliance Industries started regular shipments in late June after debottlenecking three of its crackers by a total of 200,000 tonnes/year between the end of 2016 and June 2017.

Exports from southeast Asia to northeast Asia could remain strong. Lotte Chemical Titan’s catalytic cracking unit at its Pasir Gudang complex in Malaysia is due for completion in September/October. The plant, with an ethylene nameplate capacity of 90,000 tonnes/year, will reduce the demand of the company’s standalone PE unit in Indonesia.

The outlook for the PE market remains weak amid rising capacities in Asia, the Middle East and the US. This could drive incremental ethylene exports from southeast Asian producers seeking to maximise the returns on their integrated operations.

By Yeow Pei Lin