NE Asia ethylene H2 outlook hinges on new supply, SM plant

11 June 2018 08:02 Source:ICIS News

SINGAPORE (ICIS)--Northeast (NE) Asia ethylene (C2) second-half 2018 outlook is  uncertain as several crackers are scheduled for maintenance but such production losses could be offset by the start up of a new plant and cargoes from outside the region.

More than 20 crackers in Asia are slated to undergo maintenance in 2018, with the estimated capacity losses totalling more than 1.85m tonnes. Most of the turnarounds in the first half of the year were concentrated in Japan – a key exporter to China.

However, several more companies are to carry out turnarounds in June and the rest of the year.

The impact on the regional balance will depend on the start-up progress of a new facility in South Korea and on whether the strong exports from southeast Asia and Europe in the first half of 2018 will continue.

Shipments from Yeosu, South Korea, will start to slow down in August, ahead of a series of maintenance shutdowns at complexes in that region.

Exports will recover by December when Lotte Chemical brings on-stream an added capacity of 200,000 tonnes/year at its Yeosu cracker.

The facility will undergo an expansion during a turnaround from late September to October.

Shipments from Ulsan, another petrochemical cluster in South Korea, will grow in the second half of 2018.

Newcomer S-Oil is expected to begin commercial operations at its residue upgrading complex (RUC) in Onsan in the second half of June.

The company’s entire ethylene output of up to around 200,000 tonnes/year is intended for the merchant market as it does not have any downstream plants.

Exports from southeast Asian producers will continue to be driven by the higher value from ethylene sales in the ethylene versus polyethylene (PE) trade-off.

There will, however, be supply constraints.

Four crackers in the region will undergo maintenance and the affected producers include ExxonMobil and PTT Global Chemicals (PTTGC) that were regular exporters in the first half of 2018.

Exports from Europe will likely be influenced by the performance of the PE sector.

The outlook for the PE market in Europe is uncertain, given the growing prospect of competitively-priced exports from the new US plants.

Ethylene costs in the US have been at low levels since early 2018 as production growth outpaces that for consumption.

Since late 2017, about 3m tonnes/year of new ethylene capacity and about 3.5m tonnes/year of new PE capacity have started up in the US.

The new crackers have been running well, but several of the new PE plants struggled to reach full operating rates.

Exports from Saudi Arabia are expected to be constrained by increased domestic consumption.

Petro Rabigh announced in April that the last few plants in its Phase 2 project, including a 75,000 tonne/year ethylene propylene diene monomer (EPDM) unit, have started up.

The company’s ethylene exports could fall further in the second half of 2018, following the completion of its PE maintenance shutdowns earlier in the year.

China’s import demand is poised for further growth when a new 260,000 tonne/year SM plant starts up in the third quarter as planned.

Anhui Haoyuan Chemical will be operating the unit in Fuyang, Anhui, on a standalone basis, as its plans to build a MTO plant have been put on hold amid high methanol prices.

The plant will require around 78,000 tonnes of ethylene annually to operate at maximum capacity.

Based on the above factors it was not immediately clear if the ethylene prices in the second half will follow the volatile trend they displayed in the first five months of 2018.

NE Asia spot ethylene prices were volatile from January to May as the impact of a heavy regional cracker turnaround schedule and strong Chinese demand was, at times, outweighed by strong exports from southeast Asia, the Middle East and Europe.

The market started the year at above a two and a half year high of $1,415/tonne CFR (cost and freight) NE (northeast) Asia in early January.

Subsequent transacted prices fluctuated within a low $1,200s/tonne to mid $1,300s/tonne CFR NE Asia band in the five months ended 31 May.

Prices in the first quarter were initially weighed down by ample supply from producers in the Middle East and Asia due to a series of PE plant shutdowns - both planned and unplanned.

That was despite strong pre-Lunar New Year restocking activities in China.

Demand was bolstered by the start-up of a 500,000 tonne/year non-integrated styrene monomer (SM) plant and generally healthy downstream margins for producers outside the PE sector.

End-users were also keen to build up their inventories because of the slow progress in their 2018 term contract discussions, ahead of a series of maintenance shutdowns at facilities of key exporters in the region.

In addition, a major ethylene oxide (EO) maker was seeking more import cargoes following a disruption in supply from its upstream methanol-to-olefin (MTO) unit. The plant was shut twice between late November and the first half of February because of high feedstock methanol costs.

The market recovered in early March, in line with the start of the annual cracker turnaround season in northeast Asia where scheduled capacity losses in 2018 will be overall higher than the previous year.

That explained why the country’s exports from January to April slumped by 14% year-on-year to 201,274 tonnes.

In late April, northeast Asia’s spot prices fell again after a surprisingly large quantity of deep-sea spot cargoes were sold into Asia for delivery between the middle of May and the first half of June.

There were at least 55,000-60,000 tonnes of cargoes from Europe, in addition to 11,000 tonnes of US supply for that delivery period. Europe was in a long position because of derivative maintenance shutdowns and production problems.

Continued strong exports from southeast Asia, owing to downstream production issues and the weak performance of the linear low density polyethylene (LLDPE) market, contributed to the downbeat sentiment.

The ample supply outweighed China’s robust import demand.

Buying interest in China was strong for April and May arrival cargoes, on the back of healthy downstream margins for certain downstream markets such as SM, EO and monoethylene glycol (MEG).

Ethylene buyers in China were also keen to book deep-sea cargoes to offset the expected regional production losses from cracker turnarounds.

Prices rebounded quickly in mid May, aided by a bullish SM market and reduced domestic supply.

Some MTO operators lowered production in May as high feedstock methanol costs led to squeezed margins, while a key producer in east China lowered its cracker run-rates unexpectedly.

Sharp increases in feedstock naphtha costs, which tracked gains on crude oil futures, also helped set a floor to the earlier price declines.

By early June, spot ethylene prices had touched a 20-week high, raising questions on whether the market will see similar price volatility in the second half of 2018.

Producers will turn hawkish if the outlook for crude and naphtha markets remains upbeat.

Focus article by Yeow Pei Lin

By Yeow Pei Lin