OLEFINS AND POLYMERS - Platts · PDF fileSPEIAL REPORT PETROEMIALS ASIA OUTLOO 2016 OLEFINS AND POLYMERS opright 2016 Platts, McGraw ill Financial 2 FOREWORD Increased competition

PETROCHEMICAL SPECIAL REPORT

JANUARY 2016

ASIA OUTLOOK 2016OLEFINS AND POLYMERS

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SPECIAL REPORT: PETROCHEMICALS ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

2Copyright © 2016 by Platts, McGraw Hill Financial

FOREWORDIncreased competition among olefins producers trying to hold on to or expand market share amid the increasing oversupply of polymers in China is widely expected in the first half of 2016. The new game changers – methanol-to-olefins and propane dehydrogenation plants – are facing a fierce rebound in competitiveness from naphtha-based olefins producers. Even coal-to-olefins is facing renewed competitiveness and will continue to have no competitive edge over naphtha-based petrochemicals production in H1 2016 if crude oil prices do not rebound significantly. Many of these MTO and PDH plants were planned and construction launched when global crude prices were in the three digits. Now the plunge in crude and naphtha prices is proving deeper and more prolonged than many had anticipated, fiercer competition for market share is expected in H1 2016. A possible solution that some market sources see is increased polyethylene and polypropylene exports out of Asia, with producers hoping to move their surpluses to non-Asian markets such as Africa and Latin America. In China’s case, its PP excess could be increasingly redirected even closer to home as well, such as to Southeast Asia. Demand is expected to remain bearish as long as crude does not rebound firmly and the direction of China’s economy remains unclear. In addition, many end-users across Asia are already faced with higher costs for dollar-denominated raw materials as their respective currencies have weakened. What is the outlook for olefins and polyolefins in Asia in H1 2016? This, and more, can be found in this first-half outlook for 2016 from Platts. — Clement Choo, [email protected]

OLEFINS

ASIAN ETHYLENE TO REMAIN TIGHT IN 2016 AMID STABLE DEMAND

Asian production will fall as older production units in Japan and Taiwan are scrapped and downstream derivative plants start up tapping into existing supply.

The Asian ethylene market is likely to remain tight in 2016 as demand stays stable in line with the startup of a new derivatives unit, while no major steam cracker expansions are planned in the region, market sources said.

In 2015, Asian ethylene prices were lower than in 2014. According to Platts data, CFR Northeast Asia ethylene has averaged $1,102/mt in 2015 compared with $1,425.69/mt in the whole of 2014.

The Asian ethylene market has been under pressure from macroeconomic factors such as the economic slowdown in China. The Caixin/Markit purchasing managers’ index for September was at a 6 1/2-year low of 47.2, compared with 47.3 in August. In October, the index rose to 48.3 but was still below the 50 points level, which represents a contraction.

But the decline in prices has been smaller compared with that of feedstock naphtha amid supply tightness. Platts data showed that the Asian ethylene-naphtha spread was the widest in almost nine years.

The spread between ethylene and naphtha was $862/mt on April 28, the widest since September 18, 2006, when it was $886.88/mt, Platts data showed.

The typical breakeven spread is $300-$350/mt. The Asian ethylene-naphtha spread has averaged $605.84/mt so far in 2015, compared with $563.77/mt in 2014, according to Platts data.

“Asian steam cracker operators enjoyed so much profit in 2015,” said a market source.

Japan’s Mitsubishi Chemical Holdings in November increased its profit forecast to Yen 248 billion for fiscal 2015-2016 (April to March), up 9% from the previous guidance in May. Sumitomo Chemical also forecast a record operating profit of Yen 155 billion for fiscal 2015-2016.

In 2016, the current trend of high ethylene prices and good margins are expected to continue.

“There is some new ethylene requirements in 2016 from new derivatives plants. On the other hand, no major ethylene expansions are planned for 2016,” a market source said.

In Taiwan, the USI Group plans to startup two new ethylene vinyl acetate/low density polyethylene plants in Kaohsiung in the first quarter. Both plants will have the capacity to produce 45,000 mt/year of EVA/LDPE.

ETHYLENE�NAPHTHA PRICE SPREADS WIDENS ON TIGHT SUPPLY

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Naphtha CFR Japan (right)Ethylene CFR Northeast Asia (right)

TURNAROUND SCHEDULE FOR SOUTH KOREA’S NAPHTHA-FED STEAM CRACKERS IN 2016 (‘000 mt/year)Company E/P capacity Location TimingKPIC 470/230 Ulsan No turnaroundYNCC (1) 860/485 Yeochun No turnaroundYNCC (2) 580/270 Yeochun Mar 15-Apr 15YNCC (3) 470/230 Yeochun No turnaroundSK Innovation(1) 200/140 Ulsan No turnaroundSK Innovation(2) 660/360 Ulsan Mid-Sep, one monthLG Chem 900/450 Daesan No turnaroundLG Chem 1,000/550 Yeochun No turnaroundLotte Chem 1,000/500 Yeochun Apr, 30 days Lotte Chem 1,000/500 Daesan No turnaroundSamsung Total 1,000/600 Daesan No turnaround

E=ethylene; P=propylene

Source: Company and market sources



“The [number of] cracker turnarounds in 2016 is fewer than in 2015. But the Asian ethylene supply will likely remain tight in 2016,” said another market source.

Three steam crackers are due to be shut in 2016 in South Korea compared with four in 2015. South Korea’s total ethylene production capacity is 8.14 million mt/year. The three crackers to be shut in 2016 account for 2.24 million mt/year or 28% of the total capacity. In 2015, about 46% of the total capacity was shut for maintenance.

Some steam crackers in the region will be shut permanently such as Taiwanese CPC’s 500,000 mt/year facility in Kaohsiung that was mothballed at the end of 2015. Japan’s Asahi Kasei will shut its 470,000 mt/year steam cracker in Mizushima in February.

Meanwhile, initial offers from term contract ethylene suppliers for 2016 were $20-30/mt higher from 2015.

“We have been suffering from negative margins (in 2015). We cannot accept such a price increase,” said an ethylene end-user in Northeast Asia.

Most ethylene derivatives producers suffered from negative margins in 2015 due to high ethylene costs. The Asian PE-ethylene spread narrowed to minus $10/mt on December 2, with the typical breakeven spread at plus $150/mt. It is the first time since January 21 in 2014 that the spread turned negative.

Term contract talks were likely to stretch to January, the sources said. “Ethylene suppliers want to maximize their profits before major steam cracker expansions using shale gas in 2018,” said another ethylene end-user.

Ethylene surplus in the US is expected to widen to 5.5 million mt in 2018, compared with 233,000 mt in 2015, according to METI data. Ethylene surplus in 2016 is expected to remain flat from the 2015 estimate of 201,000 mt. — Fumiko Dobashi, [email protected]; edited by E Shailaja Nair, [email protected]

INCREASED PROPYLENE CAPACITY IN ASIA TO WEIGH ON 2016 MARKET

An oversupply situation that emerged late 2015 is expected to continue into 2016 as fresh production hits the market.

Asian propylene is likely to face supply pressures in 2016, with a new plant expected to come on stream in the first half, adding to the existing oversupply from a slew of new projects that started up in late 2015.

SK Advanced, a joint venture between SK Gas and Advanced Petrochemical, plans to start trial runs at its new 600,000 mt/year propane dehydrogenation plant at Ulsan in South Korea in the first half of 2016. Some sources felt that the plant may start up in the later part of the first quarter, and with one noting that propane prices tend to be higher in winter.

This new plant comes on top of the new propylene production capacities in 2015, at around 2 million mt/year. In China, Oriental Energy started up a 600,000 mt/year PDH unit at Zhangjiagang and Yantai Wanhua Chemical a 750,000 mt/year PDH plant in Shandong, while in South Korea, Hyosung Corp. brought on stream a 300,000 mt/year PDH plant in Ulsan and YNCC started up an olefins conversion unit in Yeosu that can produce 140,000 mt/year of propylene.

Most of the new plants came online in the second half of 2015, leading to weaker prices, which depressed production margins and in turn prompted PDH and OCU operators to cut run rates.

Japan’s Mitsui Chemicals shut its 140,000 mt/year Osaka OCU in October and South Korea’s YNCC its 140,000 mt/year OCU in November.

A source at a producer in Japan said earlier that OCU operators’ run rates could face further pressure in 2016, if firm ethylene prices squeeze margins. Lower production at OCU plants may see OCU operators having less impact on the propylene balance in 2016, he said.

“It’s not easy to [see an improvement in] OCU margins (in 2016) because ethylene prices are strong,” said a source at a producer in South Korea.

Japan’s Asahi Kasei plans to permanently shut its Mizushima steam cracker in February 2016, which can make 470,000 mt/

PROPYLENE PRICES SINK ON GLUT, FRESH PRODUCTION ($/mt)

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Propylene CFR ChinaPropylene FOB Korea

TURNAROUND SCHEDULE FOR JAPAN’S NAPHTHA-FED STEAM CRACKERS IN 2016 (‘000 mt/year)Company E/P capacity Location TimingIdemitsu 374/224 Chiba No turnaroundIdemitsu 623/450 Tokuyama Early Sep to late OctKeiyo Ethylene 700/400 Chiba No turnaroundMaruzen Petchem 550/230 Chiba May-Jun, 50-60 daysMitsubishi Chem 495/320 Mizushima No turnaroundMitsubishi Chem 375/170 Kashima (1) Scrapped in 2014Mitsubishi Chem 526/260 Kashima (2) Early May, one monthMitsui Chem 600/331 Chiba No turnaroundMitsui Chem 500/280 Sakai No turnaroundJX Nippon 404/260 Kawasaki End-July, 60 daysAsahi Kasei 470/300 Mizushima To be scrapped in FebShowa Denko 695/425 Oita No turnaroundSumitomo Chem 416/288 Chiba Scrapped in early 2015Tonen Chem 515/300 Kawasaki No turnaroundTosoh 527/270 Yokkaichi Mar-Apr

E=ethylene; P=propylene

Source: Company and market sources



year of ethylene and 300,000 mt/year of propylene. An end-user in China said this would tighten the ethylene market, potentially resulting in higher run rates at other steam crackers and adding length to the propylene market.

A South Korea-based trader noted that exports from the country may decrease in 2016, should OCU run rates stay low. Furthermore, there would be increased downstream demand for propylene in South Korea, as Kumho P&B Chemicals starts up its new No. 4 solvents plant at Yeosu in May or June 2016. The plant will have a production capacity of 300,000 mt/year of phenol and 180,000 mt/year of acetone.

A source at a producer in Japan added that this expectation of lower South Korean propylene exports has contributed to relatively stable term contract negotiations for 2016, instead of the deeper discounts that were initially expected due to the oversupply. A source at a producer in South Korea said there was also a chance that the term contract alpha could be higher for 2016 than in 2015.

However, an end-user in China felt that it remains to be seen what the operation rate of Kumho’s new downstream plant will be, and if that would contribute significantly to downstream consumption of propylene.

Planned turnarounds to tighten supplyWhile the overall market is expected to be long, supply may tighten in the middle of the first half of 2016, and in September, as plant turnarounds peak.

Five steam crackers and two fluid catalytic crackers will be shut over March to June for turnarounds. The peak of the turnarounds – where four plants with a combined production capacity of around 1.4 million mt/year of propylene shut – will happen over March to April.

South Korea’s Yeochun NCC plans to shut its No. 2 naphtha-fed steam cracker in Yeosu over March 15-April 15 for annual maintenance, Platts had reported. The No. 2 unit can produce 270,000 mt/year of propylene. Lotte Chemical plans to shut its Yeosu naphtha-fed steam cracker, which can produce 480,000 mt/year of propylene, in April 2016 for 30 days of scheduled maintenance.

In Japan, Tosoh plans to shut its Yokkaichi steam cracker, which can produce 316,000 mt/year of propylene, for a 30- to 40-day turnaround in March 2016. Mitsubishi Chemical plans to shut its No. 2 naphtha-fed steam cracker at Kashima, which can produce 260,000 mt/year of propylene, from early May for around a month for annual maintenance.

Maruzen Petrochemical plans to shut its naphtha-fed steam cracker in Chiba, which can produce 230,000 mt/year of propylene, from May or June for 50-60 days. Idemitsu plans to shut it is Hokkaido fluid catalytic cracker, which can make 60,000 mt/year of propylene, over June to July.

Taiwan’s Formosa plans to shut its No. 2 residue fluid catalytic cracker for a turnaround over March to April. It has a nameplate

production capacity of 350,000 mt/year of propylene, and is able to produce, at its maximum, 375,000 mt/year of propylene.

In the second half of 2016, five steam crackers and one olefins conversion unit are slated to shut. The peak of the turnarounds, where three plants will shut in September, will see around 1.3 million mt/year of propylene production capacity shut.

Japanese refiner JX Nippon Oil and Energy plans to shut its Kawasaki naphtha-fed steam cracker, which can make 273,000 mt/year of propylene, at the end of July for about 60 days of scheduled maintenance. The company will also shut its olefins conversion unit, which can make 140,000 mt/year of propylene, at the same location.

Also in Japan, Idemitsu Kosan plans to shut its naphtha-fed steam cracker in Tokuyama from early September 2016 for annual maintenance. It has capacity to produce 450,000 mt/year of propylene.

Taiwan’s Formosa Petrochemical Corp. plans to shut its No. 2 naphtha-fed steam cracker, which can make 515,000 mt/year of propylene, at Mailiao from August 1 to September 22, 2016, for scheduled maintenance, while CPC plans to shut its No. 4 naphtha-fed steam cracker at Linyuan, which can produce 193,000 mt/year of propylene, on December 12 for maintenance.

South Korea’s SK Energy plans to shut its Ulsan No. 2 naphtha-fed steam cracker, which can make 360,000 mt/year of propylene, from the middle of September 2016 for one month of annual maintenance. — Ng Baoying, [email protected]; edited by Geetha Narayanasamy, [email protected]

ASIAN METHANOL PRICES HINGE ON CHINA’S EXPANDING MTO PLANTS IN 2016

Key factors to track in 2016 include weak crude hampering methanol demand from MTO plants, propylene and polypropylene pulling on the profitability of MTO while methanol supply may increase from the Americas.

A surge in methanol-to-olefins capacity in China is set to become the major driver and swing factor for methanol spot prices in Asia in 2016.

Although methanol demand from new MTO capacity in China is expected to grow in 2016, the scale of it will largely depend on profit margins at MTO plants. The margins will influence their operating rates, which will in turn affect methanol spot demand and prices.

If methanol demand from MTO producers firms, methanol spot prices may increase fast, but if demand falls, spot prices may sink.

Unlike other derivatives of methanol, this may become more evident in the case of MTO due to the massive scale of new MTO



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capacity in China and the rapid growth it has been showing just in the past two years, while growth in MTO capacity is expected to balloon further in 2016.

This comes as the crude oil price slump – which started in mid-2014 from three-digit levels falling to around $40/b in early December – shows no sign of ending soon.

MTO capacity to grow but plunging naphtha poses threat The scale of China’s MTO olefins capacity is huge, and it is set to triple from around 1 million mt/year at the end of 2014 to close to 3 million mt/year at the end of 2015. It is forecast to rise past 6 million mt/year by end-2016, according to industry sources.

This means methanol demand would potentially increase from 3 million mt/year in 2014 to 9 million mt/year at end-2015 and to 18 million mt/year at end-2016.

However, this all depends on the operating rates of these MTO plants, which is tightly knit with the competitiveness again naphtha-based olefins producers in Asia. And this could be the major hurdle: construction of many of these MTO plants started in an era of relatively high crude prices.

Weak crude typically leads to lower naphtha costs. Naphtha is the major feedstock for olefins production in Asia and therefore competes with MTO plants in this field. Outside of China, methanol is largely produced from natural gas, and inside China more than 90% of it is made from coal.

With rising methanol demand in China for MTO in 2015, methanol prices have been lagging the fall in crude and naphtha prices. For instance, methanol on a CFR China basis has fallen 32.6% since June 2, 2014, to $230/mt on December 9, while naphtha prices on a C+F Japan basis has fallen 54.7% during the same period to $428/mt.

Therefore, a key concern for MTO producers in 2016 will be if their demand is too strong, they will easily drive up the methanol spot prices, or at least provide a floor, and with that they push down their own profitability as their major competitors in Asia have seen their feedstock costs dropping faster, sources said.

Although ethylene and polyethylene are still considered profitable for MTO producers, propylene and its derivative

polypropylene are not considered profitable at all for MTO producers at the moment.

Profitability at MTO is not seen as improving any time soon during 2016 and could deteriorate further with more MTO capacity being brought online, potentially meaning more methanol demand and support for methanol prices.

This firm demand in China for methanol is reflected in rising 2015 imports. In January-October, China imported 4.542 million mt of methanol, up 4.8% year on year, according to China Customs Statistics Information Center data. China’s methanol imports could keep rising in 2016, along with global supply.

The US is having a construction boom of methanol plants as a result of the surge in shale gas production. This increasing output will shake up trade flows as the US is a major net importer of methanol at the moment, importing over 6 million mt in 2014, according to US Department of Commerce data.

The largest suppliers to the US are typically Trinidad and Tobago, which supplied close to 4 million mt in 2014, and Venezuela with close to 1.3 million mt.

This means cargoes from South America and the Caribbean would have to find homes elsewhere – likely in Europe and Asia – displacing Middle Eastern cargoes in the European market, according to industry sources in mid-November. This could result in more Middle Eastern cargoes being diverted to Asia.

If not from imports, China could see more methanol available if demand destruction takes place in other major end-users hit by falling energy prices, such as direct gasoline blending and dimethyl ether. DME can be used as a fuel on its own, but in China it is mostly used for blending into LPG, which is attractive to do when LPG prices are relatively high compared to methanol. The share of gasoline blending in methanol demand is around 20% and for DME around 15%-20%.

Methanol supply in China could also rise as a result of higher operating rates. While it has massive methanol capacity of 55 million mt/year – the largest in the world – operating rates have been relatively low, at around 50% in recent years. But any rate increases will depend on China’s domestic methanol prices, economic growth, competitiveness of domestic production and ultimately demand from the planned MTO plants.

ETHYLENE FROM METHANOL CHEAPER THAN SPOT PRICE

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Spread (left)Ethylene CFR NE Asia (right)C2 costs from spot methanol (right)

HDPE FILM HIGHLY COMPETITIVE

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Spread (left)HDPE Film CFR FE Asia (right)PE costs from spot methanol (right)



China’s methanol output could also rise from producers that use natural gas as a feedstock.

The government cut gas prices for industrial users by Yuan 0.70/cu m from November 20. This could support production of methanol from natural gas, which had turned unattractive as a feedstock due to relatively high prices previously. The tariff cut would be equivalent to a fall in feedstock costs of Yuan 647.50/mt of methanol produced.

One trader estimated that around 5 million mt/year of natural gas-based methanol production capacity could be brought online because of the lower feedstock costs.

Decisive year for MTO footprint This year is likely going to be very important for MTO not only because massive new capacities will be brought online.

First, will MTO be able to continue operations in an environment where naphtha prices have regained their competitiveness? This renewed competition from naphtha-based producers may put downward pressure on petrochemical prices in Asia, hitting the profitability of these MTO plants in China even further.

Although it is difficult to predict the direction of crude oil prices, although many market sources do not think it will rebound to $100/b any time soon.

Another point of concern for MTO is whether economic growth and polymers demand in China lags the projected growth due to a global or domestic economic slowdown.

Many producers are moving ahead with these MTO projects because they expect demand to continue rising for both PE and PP in China in the years ahead. And even with the increase in polymers capacity in China, demand for polymers is set to skyrocket further and set to double for both PE and PP between 2014 and 2025, according to Platts Petrochemical Analytics.

But what if economic growth stutters and derails further growth plans? The country could be easily swept into a supply glut of polymers, and which could pressure the profitability of the MTO plants.

As a result, methanol prices could become tightly linked with olefins and polyolefins prices during 2016, and swing up and down depending on the profit margins that these MTO plants can reap. — Anton Ferkov, [email protected]; edited by Meghan Gordon, [email protected]

POLYMERS

ASIAN PE’S RECOVERY IN 2016 LIES IN NEW, REGULAR TRADE FLOWS OUTSIDE OF REGION

Among the factors to look out for are: Bearish economies hitting PE demand, oversupply with new Middle East plants and Chinese CTO projects and naphtha feedstock being more attractive in a low oil price environment.

Polyethylene will not escape the bleak outlook hanging over other petrochemical products in Asia, but there is a glimmer of hope as PE starts seeing new and regular trade flows to markets outside of the region.

Oversupply amid weaker demand, the catchphrase in today’s Asian petrochemical market, has set expectations for a slowdown in demand growth to 3%-5% for 2016 compared with 2015, according to Middle East producers. This downtrend could be curbed, if the excess supply reaches out to healthier demand markets in Africa and Latin America, specifically Peru and Colombia, sources said.

A number of producers in Asia said they plan to continue redirecting cargoes into African markets. This movement had started a few years ago, with sellers wanting to diversify their customer base, but was never a regular trade flow. That is set to change with excess PE supply in Asia as well as lower freight rates amid weaker bunker fuel prices. In addition, the PE deficit in Africa is expected to reach 2.1 million mt by 2025, according to Platts Petrochemical Analytics, amid the increased use of plastics. This market used to be supplied by some local production in South Africa as well as from Egypt and Nigeria.

The Asia to Latin America PE flow, especially South America’s west coast, is another new movement that would help soak up Asia’s excess barrels. A few Asian producers said they would continue to move material into Latin America, which

PP RAFFIA FALLS INTO LOSSES FOR MTO

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Spread (left)PP Ra�a CFR FE Asia (right)PP costs from spot methanol (right)

PROPYLENE TURNS UNATTRACTIVE FOR MTO

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Spread (left)Propylene CFR China (right)C3 costs from MTO (right)



was reacting to Asia’s more competitive prices and the lower freight rates.

Some Chinese bonded warehouse re-exports will continue to be offloaded in Vietnam and Thailand due to proximity, according to traders.

Demand hitAsian demand for PE is not seen to be recovering yet, as the downstream sectors – automobiles, construction and packaging – were decreasing operating rates at their plants due an economic slowdown in China, the biggest PE market, sources said.

The decline in the value of Asian currencies versus the dollar has also weighed heavily on the region’s PE market, as most are importers of PE.

Most of PE’s applications – in film, personal care containers and raffia are consumer led – have already been hit by weaker economic growth.

Low cash liquidity amid the current economic climate is another factor impacting buying.

Excess supplyThe PE market in the Asian region is oversupplied due to new Chinese and Middle East PE capacities coming online.

PE from coal-to-polyolefin plants will flood the market in 2016, sources said. The devalued yuan helped to push down the production cost for these plants.

China’s PE production is expected to grow by over 30% year on year in 2016, if all projects that aim to derive PE from coal and methanol start up as originally planned, according to Platts Petrochemical Analytics. Coal to PE projects currently total around 4.6 million mt/year.

As a result, the overall PE deficit in China is expected to decrease from 6.7 million mt in 2015 to 6.2 million mt in 2016, according to Platts, once the additional capacity comes online, with assumptions of around 60%-80% operating rates.

From the Middle East, additional output is also expected – Saudi Arabian Sadara Chemical’s 350,000 mt/year LDPE plant and

two LLDPE lines totaling 750,000 mt/year that will start up by end-2016; and Kuwaiti Equate’s debottlenecking of an additional 175,000 mt/year of PE at its plant by mid-2016. These additional supply, most of it bound to Asia, may turn some Asian countries into exporters, sources said.

Meanwhile, not much excess supply is expected to head into storage as inventory levels are expected to stay low in a risk adverse uncertain macroeconomic situation.

“[As a result,] I expect the market to be more volatile as no one is keeping a cargo buffer,” a major trader said.

Trade liquidity of specialized grades to get a boostThe switch to more specialized PE grades – such as from butene-based LLDPE to metallocene based-LLDPE, or mLLDPE, – is likely to continue into 2016, as prices for the better quality mLLDPE has come off, industry sources said. Metallocene PE has better processing qualities and tensile strength.

The drop in mLLDPE prices has encouraged end-users to seek more of that specialty grade plastic resin, boosting profits for mLLDPE producers as well as market share, as it is not easy for end-users to easily switch from mLLDPE to butene-based LLDPE again.

Coal-to-polyolefin plants all produce butene-based PE.

More plastic converters might use hexene-grade, or C6, metallocene linear low density PE, in their resin formula, instead of C4-LLDPE, since they will be getting a higher quality polymer. C6-mLLDPE is around $100/mt more expensive than normal butene-based LLDPE, but this spread is narrower than the typical C6/C4 spread of $150/mt.

Naphtha feedstock a bigger drawMost sources expect integrated naphtha-based PE production to remain profitable in 2016, as the PE-naphtha price spread – averaging around $700/mt in 2015 so far – has firmly stayed above the breakeven production cost of around $550/mt. Unintegrated producers may, however, resort to forced closures or a drop in operating rates, sources said.

Alternatively, unintegrated producers may mull cutting PE production and selling off feedstock ethylene if both continue to stay at similar prices, sources added.

Naphtha-based feedstock continues to be competitive in a low oil price environment in Asia. Although polyolefins manufactured from the coal route did rise, the full capacity increase will not be fully felt, with some of those plants lowering run rates or undertaking maintenance due to market weakness, China-based sources said.

India-Singapore FTA to boost flow of specialty grades to indiaPE shipments of specialty grades from Singapore to India are expected to pick up in the long term following a free trade agreement that took effect December 1, sources said.

C6 MLLDPE PRICE DIFFERENTIAL OVER C4 LLDPE NARROWS

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C4 LLDPE CFR FE Asia (left)C6 mLLDPE- C4 LLDPE (right)

LLDPE Metallocene C6 CFR S Asia weekly ( left)



PETROCHEMICAL MARKET ANALYSISUnderstanding complex petrochemical markets is crucial in gaining a competitive advantage.

The global petrochemical feedstock slate is becoming more diverse. As producers strive for a cost advantage, low-cost feedstocks are fueling investments decisions.

Platts’ analysis of the global petrochemical markets allows you to dig deeper into:

• Supply and demand Understand which regions have a supply surplus and which have a deficit – and the impact new capacity additions will have.

• Long- and short-term coverage See how regional and global capacity will change over the next 12 months, or throughout the next 10 years.

• Global trade flows Track how global trade flows are changing and understand what this means for each regional market.

• Variable cost curve See where each petrochemical facility sits on the variable cost curve and how cumulative capacity additions are affecting regional production costs.

• Coal-to-Olefins projects See new planned projects, together with the location, capacity and on-track status for each.

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India doesn’t produce some specialty grades like mLLDPE, but sources in both markets do not expect this to have much impact initially, because the duty imposed was small and demand has been poor.

Singapore’s PE shipments to India were previously hit by a 0.6% duty of their CFR value, but this was removed December 1, according to an official statement from India’s finance ministry.

One Indian producer said he will continue to watch for signs, since the FTA could increase competition with Singapore producers. “Our local selling price may decrease,” he said. — Heng Hui, [email protected]; edited by Geetha Narayanasamy, [email protected]

NEW CHINESE CAPACITY TO OUTPACE ASIAN PP DEMAND GROWTH IN 2016

China is likely to add 3 million mt/year capacity by end-2016 while Southeast Asia will see higher supply from China. Meanwhile, India’s H1 2016 market is expected to be weak on ample domestic supply and imports.

Asia’s polypropylene market is expected to be weak during the first half of 2016, with projected demand growth outpaced by new capacity coming on stream in China.

Total PP demand in Asia is forecast to rise by nearly 6%, or 2 million, from 2015 to 36.7 million mt in 2016, with China accounting for nearly 60% of demand, according to Platts Petrochemical Analytics.

But China is also rapidly building up production capacity, with up to 3 million mt/year of new capacity expected to come on stream in 2016 – outpacing the expected growth in demand throughout Asia.

Coal-to-olefins linked PP is expected to make up more than half of this new capacity in China, with the rest from methanol-to-olefins and propane dehydrogenation projects.

Of the planned 3 million mt/year capacity, 1 million mt/year is expected to start up in Q2 2016. They are: China Coal Mengda New Energy’s 300,000 mt/year CTO-linked PP plant in Inner Mongolia’s Ordos, Shenhua Group’s 300,000 mt/year CTO plant in Xinjiang, and Ningbo Fortune’s PDH-linked PP plant in Ningbo.

Another 2 million mt/year of new PP capacity is scheduled for startup in H2 2016, notably Sinopec’s Zhong Tian He Chuang Energy, a CTO-linked plant with 700,000 mt/year of capacity in Ordos, although delays may happen depending on market conditions, sources said.

Last year, China added 900,000 mt/year of new capacity from three plants, including Shenhua Group’s 300,000 mt/year CTO-linked PP plant at Yulin. Further increase in capacity in 2016 will tip the country into a PP homopolymer exporter, market sources said.

New capacity tipping China towards PP exports in 2016China has already started exports of commodity grade PP homopolymers in 2015, said Chinese traders and Southeast Asian end-users. And exports are on track to top 150,000 mt in 2015, up 25% from 2014, according to industry data.

An analysis of China’s trade data for January-October exports suggests a more nuanced picture, as half of the volume comprises re-exports from bonded warehouses.

About a quarter of the volume is identified as domestically produced homopolymers, according to a trader, where Sinopec’s naphtha-based PP supply makes up 50% of the volume.

But recently, CTO-linked PP has been offered to Southeast Asia in small quantities, according to multiple industry sources.

“PP raffia is already exported to Vietnam, I expect (in 2016) it will also go to ASEAN [Association of Southeast Asian Nations] countries, especially Thailand, due to its free trade agreement [with China],” said a trader after attending a recent strategy presentation conducted by a CTO company.

A opportunity for exports typically opens whenever Chinese domestic prices fall to Yuan 6,300/mt or below, equivalent to less than $800/mt on an import parity basis, noted another trader, adding that his firm offered CTO material into Vietnam at $910/mt in late November.

A source from a major Japanese trading company also concurred, noting his firm has been testing the waters by buying 500 mt each month from a Chinese MTO producer and selling to Vietnam and Latin America.

Conversely, the rapid expansion of domestic supply has slowed down imports into China. The country imported 263,935 mt of PP homopolymer in October, down 7% compared with the same month in 2014, according to latest data from the General Administration of Customs.

CHINA POLYPROPYLENE PLANT STARTUPS, 2015-2016Plant Name Type Scheduled Capacity (mt/year)

Started 2015

Shandong Shenda Chemical PP, Tengzhou MTO Jan-15 200,000 Zhangjiagang Yangtze Petrochemical PP, Zhangjiagang PDH May-15 400,000 Shenhua Group PP, Yulin CTO Dec-15 300,000 Total 900,000

H1 2016 highly likely

China Coal Mengda New Energy PP, Ordos CTO Apr-16 300,000 Shenhua Xinjiang Coal Liquefaction, Xinjiang CTO May-16 300,000 Ningbo Fortune PP, Ningbo PDH May-16 400,000 Total 1,000,000

H2 2016

Fund Energy PP, Changzhou MTO mid-2016 300,000 Qinghai Damei Coal PP, Xining City CTO mid-2016 400,000 SINOPEC Zhong Tian He Chuang Energy PP 1, Ordos CTO H2 2016 350,000 SINOPEC Zhong Tian He Chuang Energy PP 2, Ordos CTO H2 2016 350,000 Jiutai Energy PP, Ordos MTO H2 2016 350,000 Fujian Meide Petrochemical, Fujian PDH H2 2016 300,000 Total 2,050,000

Source: Industry Sources



Full-year 2015 imports of PP homopolymer is expected at 3.4 million mt, down 6% from 2014.

But not all types of PP imports are trending down. China is expected to import more than 1.3 million mt of block copolymer grade PP in 2015, up 8% from 2014, as higher value applications for copolymers continue to grow.

Middle Eastern producers eye sales to VietnamVietnam is expected to be one of Southeast Asia’s hottest growth market, with demand forecast to grow annually by 7% in 2016 and beyond, according to Platts Petrochemical Analytics.

The country has virtually no domestic PP capacity, with the exception of PetroVietnam’s 150,000 mt/year plant at Binh Son. Vietnam’s annual PP deficit is expected to reach 938,000 mt in 2016, widening to 1 million mt by 2017.

Vietnam has the lowest barrier to entry for PP imports among Southeast Asian countries, according to industry duty data. Free trade agreements with China and ASEAN members means PP imports from those countries are duty free, while supply from India, Saudi Arabia and other countries incur a nominal import duty of 2%.

Still, Middle Eastern producers see Vietnam and Southeast Asia as strategic growth markets. A quarter of Vietnam’s plastic imports come from Saudi Arabia, according to import data obtained from a Vietnam-based trader.

“[In] Southeast Asia, there are potential growth [markets] like Malaysia, Indonesia, Thailand, Vietnam. I think they will, for the next 20-25 years, play the role that China has played for the last 30 years,” Saudi Basic Industries Corporation CEO Yousef Abdullah Al-Benyan told Platts in an interview in November.

Aggregate demand from Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam will exceed 5 million mt in 2016, and is expected to grow at 5% annually over the next few years, according to Platts Petrochemical Analytics.

Even with rapid growth, Southeast Asia is not expected to replace China’s massive PP consumption footprint, which is estimated at 21 million mt in 2016, anytime soon. This will continue to add pressure on the export-oriented Middle Eastern producers in 2016, as China becomes more self-sufficient.

India’s H1 2016 market expected weak on ample domestic supply, importsIndia’s PP demand is forecast at 4.1 million mt in 2016, up 7.8% compared with 2015, according to Platts Petrochemical Analytics.

But even with the projected strong growth rate, traders and end-users are predicting a weak H1 2016 for the PP market in India.

“Now that China is not buying, Middle East producers will need to give significant discounts to offer into India, especially after MRPL [Mangalore Refinery and Petrochemicals Ltd.’s 450,000

mt/year PP plant] started up,” said an end-user, predicting the supply glut to continue in 2016.

On the supply side, two plants are expected to start up in 2016: Brahmaputra Cracker & Polymer Limited’s 60,000 mt/year plant in Dibrugarh and the 340,000 mt/year ONGC Petro additions Ltd’s plant in Gujarat, both starting up in H2 2016, sources said. — Huang Yi-Jeng, [email protected]; edited by Irene Tang, [email protected]

ASIAN VINYLS MARKET EXPECTED TO BE BEARISH IN 2016 ON CONTINUED IMBALANCE

Weaker margins in Asia are expected to be prolonged amid a glut of PVC and VCM while EDC supplies grow thin.

The imbalance of the Asian vinyls market, including ethylene dichloride, vinyl chloride monomer and polyvinyl chloride, looks likely to become worse in 2016 as EDC supplies become tighter, while VCM and PVC remain oversupplied, industry sources said.

PVC supply in the region has been more than ample with the startup of new plants in Asia, especially in China.

Chinese PVC plants, which use coal as a feedstock, have led to a supply glut and it has been exporting in a bid to reduce stocks.

Japan’s Ministry of Economy, Trade and Industry said the Asia had 1.11 million mt of PVC surplus in 2014, which is expected to have risen to 1.16 million mt in 2015 and is expected to hit 1.5 million mt in 2016.

China exported 1.136 million mt of PVC in 2014 against imports of 550,015 mt, according to customs data.

In line with rising PVC supplies, margins have been weakening. Asian PVC margins turned negative from 2014, with the PVC-VCM spread averaging $134.52/mt, narrower than the $150/mt needed for breakeven. From 2011-2013, the spread hovered around $155-160/mt.

Market sources said Asian PVC supply was likely to increase in 2016 with more new plants scheduled for startup. Indonesia’s Asahimas plans to startup its new 250,000 mt/year PVC unit

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in Anyer in the first quarter of 2016. Asahimas is likely to start selling PVC as early as January.

In addition, supplies from the US are also increasing. China’s PVC imports from the US over January – September were 183,566 mt, rising 3.9% from a year earlier, according to Chinese customs data.

Platts data showed that Asian PVC price has averaged $837/mt for most of 2015, compared with an average of $1,018.54/mt in the whole of 2014.

Some market sources said some material may be absorbed by Australia, where a PVC plant is due to be shut permanently early 2016. Australian Vinyls plans to mothball its 130,000 mt/year PVC unit in Laverton, Victoria, early 2016. A market source said Australia would increase PVC imports following the shutdown but fresh requirements are still unclear.

VCM tightness expected to easeStructurally, the Asian VCM market is short. Japan’s METI has forecast that Asia would be short of 209,000 mt of VCM in 2016, compared with 266,000 mt in 2015 and 534,000 mt in 2014.

Chinese customs data showed strong demand for VCM imports in 2015. China imported 624,859 mt of VCM over January-September, up 20.1% year on year.

On the other hand, Asian VCM prices fell in 2015. According to Platts data, CFR Far East Asia VCM has averaged $693.28/mt so far in 2015, falling 21.6% from the average price for the whole of 2014.

Asian VCM is seen to be under pressure in 2015 in line with a bearish PVC market and this is to continue in 2016.

On the other hand, EDC supply is expected to become tighter, following the startup of new Indonesian VCM plant.

Japan’s METI has forecast EDC deficit in the region at 1.29 million mt in 2016, up 12.8% from 2015.

Market sources see Asahimas cutting its exports of EDC, a feedstock for VCM, after the startup of the new VCM plant.

Despite supply tightness, Asian EDC prices are not expected to go up due to the expected influx of US cargoes.

China imported 480,232 mt of EDC over January to October 2015, down 17.5% from a year earlier, according to customs data. China’s EDC imports from the US over January-October were 304,240 mt, down 25.2% from the previous year.

Platts data showed that the CFR Far East Asia EDC averaged $288.53/mt for most of 2015, down from the average of $444.15/mt in the whole of 2014. — Fumiko Dobashi, [email protected]; edited by E Shailaja Nair, [email protected]

CAUTIOUS RECOVERY SEEN FOR ASIAN POLYESTER, FEEDSTOCKS PTA, MEG IN H1 2016

Platts’ analysis shows PTA prices are foreseen to be stable to firmer amid seasonal high demand while Chinese MEG imports are forecast to exceed 8.6 million mt on firm demand. Higher run rates are expected to be seen across Northeast Asian PET and polyester plants in the meantime.

Most Asian polyethylene terephthalate, polyester and feedstock producers are cautiously optimistic of a recovery in feedstock purified terephthalic acid and monoethylene glycol prices in the first half of 2016 – at least from March onwards – pulled by seasonal high demand for both polyester and PET resin, and improved macroeconomic data from China and India.

Polyester demand from China is expected to remain healthy throughout 2016, according to a global producer, who also forecast Indian demand growth to outpace the rise in global demand.

“Our forecast is for Indian GDP to exceed the 7.5% projected by the IMF [International Monetary Fund] for 2016. In terms of polyester, global growth is likely to be around 5% whilst we anticipate Indian polyester demand to grow about 6%-7%,” he said.

The weak global demand seen during the second half of 2015 for polyester and PET resin has markedly pressured down Asia’s polyester, PTA and MEG markets.

Negative China macroeconomics, reports of historical lows in China’s Producer Price Index which dropped 5.9% in September 2015 from a year earlier – marking the 43rd consecutive month of deflation – and Chinese flash Purchasing Managers’ Index which fell to a record 77-month low of 47.0 in September, have all contributed to spook the market and diminish confidence in any sort of recovery.

For polyester and PET feedstock PTA, prices have been under pressure since the start-up of mega worldscale plants in China, each over 1 million mt/year in size – between 2009 and 2013, which gradually culminated to an oversupply of PTA and price declines and negative margins through 2014.

But a recovery in PTA prices was seen in Q2 2015 after China’s Dragon Aromatics shut its paraxylene plant in Zhangzhou following an explosion and fire on April 6. This in turn, led Xianglu Petrochemical to shut its 4.5 million mt/year PTA plant at Zhangzhou and the 1.65 million mt/year PTA plant in Xiamen, as most of its PX feedstock comes from the Dragon Aromatics plant. Since April 6, Asian PTA prices had climbed progressively through to June, hovering at around $690/mt and $750/mt CFR China.

But since July, PTA prices had corrected on seasonal demand lull, and a lack of recovery in downstream PET and polyester markets. Asian PTA prices fell from $660/mt CFR China on July 10 to $580/mt CFR China on September 28.

In terms of yuan-denominated domestic PTA prices, the price slippage has been less sharp, and prices had in fact recovered



by early October. Major Chinese PTA producers are optimistic that PTA prices will remain stable through to early February, and likely rise in Q2 2016 as supply continues to be snug.

PTA prices stable to firmer in H1 2016 amid capacity cuts in chinaChina’s PTA production is expected to stay at 34.44 million mt/year in H1 2016.

Apart from Xianglu Petrochemical’s plants which were affected by the outage of Dragon Aromatics’ Zhangzhou PX plant, China saw the permanent closure of 3.2 million mt/year of PTA capacity after Shaoxing Yuandong filed for bankruptcy earlier in 2015, ceasing operations at all its four plants at Shaoxing in eastern China’s Zhejiang province.

In fact, Chinese PTA producers have seen PTA margins derived from yuan-denominated sales flipped to positive by late October to around Yuan 100-220/mt profit.

“PTA margins are calculated based on a 0.66 multiplied by yuan-denominated PX feedstock prices, plus a conversion cost of Yuan 600-700/mt. At current PTA price of Yuan 4,720/mt and PX price at Yuan 5,900-5,950/mt, margins are around Yuan 93/mt to Yuan 226/mt, depending on each PTA producer’s cost,” said a Chinese producer.

“We expect to be able to enjoy positive margins through to Q2 due to the absence of both Shaoxing Yuandong and Xianglu Petrochemical from the PTA market, as well as the traditional high season for polyester and PET, which would drive both demand and prices of feedstocks PTA and MEG higher,” said another major Chinese PTA producer.

MEG margins to turn positive by Q2 on robust demand from China, IndiaAsian MEG margins have been under pressure since the second half of 2015, as a combination of low seasonal demand for PET and polyester, as well as reduced PET operating rates across Northeast Asia, have led to weaker buying interest for both feedstocks MEG and PTA.

Since July 10, the Asian MEG production margin was calculated at minus $15/mt with Asian ethylene assessed at $1,230/mt CFR Northeast Asia and Asian MEG assessed at $873/mt CFR China.

The MEG production margin is calculated by multiplying the ethylene price by a conversion of 0.6 and adding an estimated $150/mt in production costs.

Operating rates across downstream Taiwanese and South Korean PET and polyester plants were reported at around 80%-85%, while Chinese PET, polyester producers were heard operating at even lower rates of 75%-80% in late Q3, and currently heard at around 70%-75%.

Run rates across Taiwanese, South Korean and Japanese MEG plants are reported around 80%, while in China, rates are estimated at around 70% by taking the average of low 30%-40% for coal-based MEG production and around 80% for traditional MEG production. Operation rates across Middle Eastern MEG plants are around 85%-90%.

“With current MEG prices hovering around $565/mt CFR China, and ethylene contract prices around $890/mt CFR Northeast Asia, ethylene-based MEG producers are suffering significant losses at around minus $115/mt. However, naphtha-based producers are still able to enjoy margins of around $50/mt, given current naphtha prices at around $450/mt C&F Japan,” said a Taiwanese MEG producer.

“With seasonal demand expected to pick up from downstream polyester and PET markets from March, we anticipate the margins for naphtha-based producers to improve ... we forecast MEG prices to improve to around $630-$650/mt by Q2,” the producer added.

“Chinese imports of MEG have in fact increased since 2014. China imported 8.24 million mt of MEG in 2014, compared with 8.2 million mt in 2013 ... and will likely import around 8.5 million-8.6 million mt in 2015. For 2016, China would likely import around 8.6 million mt of MEG, if not more, based on the IMF’s forecast of 6.3% GDP,” he said.

A global MEG producer anticipates Indian demand to pick up in 2016, extending the upward momentum seen last year. The producer estimated India’s MEG imports in 2015 will reach just under 1 million mt, and to exceed 1 million mt in 2016.

“Global supply of MEG will remain tight whilst non-conventional sources of MEG supply will continue to be unstable. India’s Reliance Industries will likely be able to start up its new 750,000 mt/year MEG plant at Jamnagar in Gujarat only over October-November 2016. Further depleting supply into Asia would be the regular maintenance turnarounds at the MEG plants located at Al Jubail and Shuaiba, owned by Saudi Arabia’s Sharq Eastern Petrochemical Co., Jubail United Petrochemical Co. and Equate, from January through August,” the global producer added.

Seasonal demand to lift PET prices, improve/increase run ratesAsian PET and polyester makers have reduced operating rates in Q4 2015 amid persistent bearish downstream demand. Run rates across Asian PET and polyester plants in Taiwan, South

ASIAN MONOETHYLENE GLYCOL PRICES FALL SHARPLY IN LATEQ4 2015 ($/mt)

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Korea and Japan are reported at around 75%-85%, while in China, rates are said to average 75% of capacity.

Prices of Asian PET have fallen progressively from September through to November due to falling MEG and PTA feedstock prices. PET margins, while remaining positive, have seen significant erosion.

The PET production margin is calculated by multiplying the MEG price by a conversion of 0.34 and multiplying the PTA price by a conversion of 0.87, and adding an estimated $150/mt in production costs.

On October 7, the Asian PET production margin was calculated at $18/mt, with Asian MEG assessed at $663/mt CFR China, Asian PTA at $600/mt CFR China, and Asian PET at $915/mt FOB Northeast Asia, Platts data showed.

“PET prices are likely to stay within a range of $900-$1,000/mt through March, with a potential upturn in prices during the second quarter, depending on demand, and also on MEG and PTA feedstock prices,” said a Taiwan-based PET producer.

“With improved downstream demand, Asian PET and polyester production rates would likely be raised by Q2 to around 85%-90% across Taiwan, South Korea and Japan, while in China, rates would likely be at the higher 80%-85% range,” the producer added.

Demand typically picks up following the end of the Lunar New Year holiday season from early March and remains high through end of June.

But market participants are uncertain about the strength of recovery in demand, given the lower growth forecast for China.

Indian polyester demand will however stay robust, with one global producer anticipating growth at 6%-7% for 2016.

The IMF has forecast a slower GDP growth rate for China, at 6.8% for 2015 and 6.3% for 2016, from 7.3% in 2014. For India, the fund sees GDP growth picking up in 2016 to 7.5%. — Jennifer Lee, [email protected]; edited by Irene Tang, [email protected]

FUNDAMENTALS FOR VAM SEEN POSITIVE BUT AA LIKELY TO REMAIN BEARISH IN 2016

The outlook for acetic acid and vinyl acetate monomer is mixed as AA is under pressure from oversupply and a weak downstream market while tight supply and firm feedstock costs prop up VAM. Also supporting the latter – VAM applications continue to see robust demand.

The Asian acetic acid and vinyl acetate monomer markets are seen to be heading in different directions early 2016, with AA coming under pressure from oversupply, low feedstock methanol costs and lackluster downstream demand, while VAM pushes up amid tight supply and a robust downstream demand.

“The general feeling is that the trajectory [for acetic acid] is downward for 2016,” a trader in China said. “Producers want to push out maximum cargoes but buyers have disappeared due to bearish sentiment. Demand is also likely to tumble during the Lunar New Year holiday period in February,” he said.

Feedstock methanol costs, which are expected to move down in line with crude and energy values, will put more downward pressure on AA.

“Many producers inside and outside China [have already] cut production or shut some plants mainly due to poor economics,” an industry source in North Asia said.

BP YPC Acetyls Co., for example, halted production at its 500,000 mt/year AA plant at Nanjing, China, since end-September due to poor margins, sources said.

“We are losing money [on some deals] due to low AA prices,” a producer in China said, noting that the run rate at his company’s AA plant was already trimmed from 80% in October to 70%, and more cuts could ensue in light of the challenging market conditions and weak downstream demand.

Purified terephthalic acid, or PTA, is among the fastest growing applications within the AA market.

Existing PTA manufacturers are already suffering from excess capacity, low production margins due to strong prices of feedstock paraxylene, sources said, adding that no new major downstream PTA plant expansions were planned in China for 2016.

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VAM seen firmWith AA languishing in 2016, one would expect VAM – another downstream of AA – to move in line, but VAM prices are likely to be propelled by positive fundamentals and strong ethylene prices, market participants said.

They estimate the CFR Southeast Asia marker to cross the $950/mt level in the coming months.

The CFR SEA VAM price was assessed at $880/mt on December 10, down 15.78% from the assessment on January 8, 2015, while the CFR South Asia marker plummeted 16.43% over the same period to be assessed at $890/mt on December 10, Platts data showed.

The main factor supporting VAM in 2016 is tight supply.

The Sinopec Group was heard to have declared a force majeure at its Sichuan Vinylon plant on December 10, industry sources said. The problem likely started on December 6 or December 7 due to some feedstock concentration at the site and has escalated since then, sources added.

Sinopec declined official comment.

Sinopec’s VAM plant at Chongqing, southwest China, has a total nameplate capacity of 500,000 mt/year.

With Sinopec’s force majeure, supplies would tighten as Singapore’s Dairen VAM plant has already stopped offering material after Shell declared a force majeure recently, sources said.

Shell declared force majeure on the supply of ethylene and propylene from its steam cracker at Pulau Bukom in Singapore, industry sources said in early December. The Singapore steam cracker has a production capacity of 960,000 mt/year of ethylene, 540,000 mt/year of propylene, 186,000 mt/year of butadiene and 276,000 mt/year of benzene.

Strong ethylene prices are also expected to push up VAM.

The Asian ethylene market is likely to remain tight in 2016 as demand stays stable in line with the startup of a new derivatives unit, while no major steam cracker expansions are planned, industry sources have said.

The CFR Northeast Asia ethylene marker has averaged $1,102/mt for most of 2015 compared with $1,425.69/mt in the whole of 2014, data showed.

Meanwhile, VAM applications continue to see robust demand, sources said.

In Taiwan, the USI Group companies plan to startup two new ethylene vinyl acetate/low density polyethylene plants in Kaohsiung by the first quarter of 2016, a source close to the company said.

“The swing plants can each produce 45,000 mt/year of EVA/LDPE, with the EVA output containing vinyl acetate content of up to 40%, including all ranges of applications,” the source said. — Surabhi Sahu, [email protected]; edited by Haripriya Banerjee, [email protected]

POOR DOWNSTREAM DEMAND, LOW NAPHTHALENE PRICE KEEP ASIAN OX UNDER PRESSURE

A bearish outlook is foreseen for orthoxylene as demand plunged in China in H2 amid weak production margins for OX while naphthalene is becoming more popular in downstream use.

Asian orthoxylene is expected to remain under pressure in the new year amid poor demand for plasticizers, lower priced downstream naphthalene-based phthalic anhydride and poor margins for OX production, market sources said.

“The problem is that demand for plasticizers is low and fewer traders are trading OX, so liquidity is less. South Korea has no exports and Taiwan also has less exports because [state-owned] CPC is not running its plants. The main supplier is India’s Reliance Industries Ltd.,” a Singapore-based trader said.

OX is primarily used for the production of phthalic anhydride or PA, an intermediate in the production of plasticizers such as dioctyl phthalate. It is also used in other products such as unsaturated polyester resin and paint.

Plasticizers are used, among other things, to soften PVC to make imitation leather.

However, market sources said Chinese PA producers who use OX as their feedstock were running their plants at an average rate of below 50% in 2015 as plasticizer demand had weakened, most significantly in the second half of the year.

Significant demand drop in ChinaThis made an impact on China’s OX imports, which slumped 13% on average over July-October, compared to January-June, customs data showed.

When considering that this happened in the wake of the shutdown of one of China’s major OX producers, Taiwan-

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owned Dragon Aromatics, in April, the impact is even more significant. Combining these two factors, one China-based trader estimated that OX consumption in China decreased by 10,000-20,000 mt/month from the first half of 2015 to the second half.

China’s imports came in at a year-to-date low of 19,328 mt in October, customs data showed.

South Korea, previously one of the main suppliers of OX to the Chinese market, has not exported any OX at all so far in 2015, customs data shows, as South Korean producers have kept run rates at a minimum, supplying only to domestic customers.

OX producers were also facing poor margins as its spread against feedstock isomer-grade mixed xylene had turned negative.

Isomer-MX was assessed at $655/mt FOB Korea on December 11, $21/mt above OX which was assessed at $634/mt FOB Korea.

However, integrated producers have a spread of $204.80/mt above naphtha at $429.25/mt CFR Japan, based on December 11’s price assessment.

Naphthalene more competitiveThe lower cost of naphthalene makes it a more ideal feedstock for PA than OX, said sources.

Naphthalene, which is derived from coal and is a by-product of the steel industry, has seen prices fall, making it more competitive as a feedstock for PA. The naphthalene price in Northern China was heard to be about Yuan 2,100/mt late last year. After adding freight cost to East China, the price would come to about Yuan 2,400-2,600/mt, still much lower than OX at Yuan 4,900-5,200/mt, market sources explained.

As a result, naphthalene-based PA is currently priced about Yuan 700/mt lower than OX-based PA, a PA maker in China said.

China has a total OX-based PA production capacity of about 1.8 million mt/year, and naphthalene-based PA capacity of about 600,000-700,000 mt/year, market sources said.

Naphthalene-based PA is mostly used to make unsaturated polyester resin, but can also be used in the production of DOP, although discoloration can be a problem, sources said.

Looking to 2016, no major improvement in the demand for OX is expected in the short term, sources said. But if idled OX plants like Dragon Aromatics’ 200,000 mt/year plant in China and Singapore’s Jurong Aromatics’ similar-capacity OX unit, start up soon, supply would be added to what seems to be an already oversupplied market.

So far, however, no restart dates have been announced for either. — Gustav Holmvik, [email protected]; edited by Haripriya Banerjee, [email protected]

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OLEFINS AND POLYMERS - Platts · PDF fileSPEIAL REPORT PETROEMIALS ASIA OUTLOO 2016 OLEFINS AND POLYMERS opright 2016 Platts, McGraw ill Financial 2 FOREWORD Increased competition