Fears are rising about the risks of recession, as I discuss in a new one-page summary of the key issues facing the aromatics industry, ‘What does the future hold for Aromatics?‘. Please click here to download it.
These issues will also be key topics at next month’s 17th World Aromatics and Derivatives Conference, jointly organised with ICIS, along with detailed coverage of the benzene and xylene value chains.
We have the usual strong line-up of speakers, and the Conference will also provide an excellent opportunity to exchange views with business partners and colleagues. For further details and to book your place, please click here.
I hope to see you in Amsterdam next month.
The post Rising interest rates, volatile exchange rates, high oil prices and plastic waste challenge aromatics industry appeared first on Chemicals & The Economy.
Some years ago, when China was well on the way to becoming the world’s largest importer of chemicals, a reporter asked the chairman of Sinochem, China’s largest chemical company if China intended to keep increasing its imports? ”Not at all” was Su Shulin’s reply, “This is temporary. It is not our strategy. We will become self-sufficient.”
China’s current 13th Five Year Plan, covering 2016 – 2020, confirms his analysis. Wherever possible, China is now moving to increase its self-sufficiency as the above chart confirms:
In the ethylene chain, it intends to increase self-sufficiency from 49% in 2015 to 62% in 2020
In the propylene chain, self-sufficiency will increase from 67% in 2015 to 93% in 2020
Detailed investment plans are already being implemented to fulfill this strategy
Ethylene and propylene are following the pattern set in other major product areas. In 2014, China was the world’s largest importer of PTA, the key raw material for polyester fibre and PET bottles, as the second chart confirms:
It imported 1.7 million tonnes in January – March 2014. But then a series of major new world-scale plants began to come online, and China has since become a net exporter
NE Asian producers have lost 97% of their export volume to China and SE Asian producers have lost 90%
NEA and SEA are also now starting to face competition from China in Middle Eastern import markets
PTA is not alone in seeing this transition. There has really only been one major exception, paraxylene (PX) – the raw material used to make PTA. As the third chart shows, the new PTA plants have had to depend on PX imports for their feedstocks. The reason is that PX became the target of public concerns over environmental pollution and safety, causing expansion plans to be put on hold for some years.
China PX imports have risen by a third over the past 3 years to 2.7 million tonnes in Q1 this year
NE Asia has been the main supplier, with S Korea, Japan and Taiwan all moving major volumes
This, of course, has helped to compensate for the loss of their PTA exports
But now the logjam on new PX plants in China has been broken, and capacity is set to double from 13.6 MT to 29.7MT over the next 3 years. This expansion will not only support new downstream capacity in PTA, but will likely also lead to modest exports of PX as well.
This is further evidence, if more was needed, that the 4.5 million tonnes of new US polyethylene capacity will likely have major problems in finding a market, as it comes online later this year. As I noted back in March, the scope for disappointment with these projects is very high. US polyethylene exports had already fallen 50% since their 2009 peak – even before China began to increase its self-sufficiency
Next month’s World Aromatics and Derivatives Conference in Brussels has a range of top-name speakers discussing key issues for the markets.
Co-organised as always with ICIS, it features:
Shell: Global strategy manager Herbert Le Lorrain will present Shell’s new scenarios for the future, ‘Mountains and Oceans’
Bayer MaterialScience: New procurement head Christian Buhse will provide his first impressions of global benzene and toluene markets
Tullow Oil: Oil marketing manager Ben Holt will share the insights of this fast-growing company on the crude oil market
Styrolution: Global product manager Brian Torrez will outline challenges and opportunities for the styrene market
Equipolymers: Commercial Director Antonello Ciotto will describe how the PET industry is meeting new requirements from brand managers
Avestra: CEO Adam Popov will provide an overview of Russia’s phenol/acetone market developments
In addition, Andrew Horncastle of leading consultants Booz & Co will describe the impact of latest refining industry developments on the aromatics markets. Whilst Stewart Hardy of industry experts Nexant will review the outlook for the paraxylene chain.
The blog will also present two papers. ‘Life as a by-product’ will look at the benzene outlook. Whilst ‘Aromatics and Derivatives in the New Normal’ will discuss how age range and income levels will be key to future industry success.
Sponsored by Integra, the Conference has become a key event for the global industry, and provides an ideal networking opportunity. Please click here for registration, and the full agenda.
The above chart would have seemed unbelievable at any time in the past 30 years. It shows the performance of propylene and butadiene relative to ethylene.
Not because it shows butadiene prices racing ahead relative to ethylene (green line). This happens routinely during a downturn, as tyre demand is more robust than for polymers. If people are not buying new cars, they still have to buy new tyres for existing cars – for legal and safety reasons.
But the record level of the butadiene premium to ethylene, an average of 170% in 2011, does give a clue to the dramatic nature of the disruption that has taken place.
The real shock, however, is that propylene sold at parallel prices to ethylene through the year (blue line). Not only has this never happened before. But it is also contrary to the main rationale for propylene sales, as this developed during the 1980’s.
The blog discussed this emerging trend back in July 2010, in a major series of posts that anticipated recent developments. They were also summarised in its ICB analysis of September 2010. New readers may like to refer to these for background detail by clicking the links:
• Major changes underway on relative olefin pricing
• Propylene prices reach parity with ethylene
• Benzene develops security of supply issues
• Lower Western gasoline demand helps paraxylene
• Major changes underway in chemicals markets
The key is that markets have become supply-driven. Oil production and refinery output have been reduced due to lack of demand. This has reduced ethane availability in the Middle East, and naphtha availability in the West.
Equally, the dramatic increase in the price of crude oil versus natural gas in the USA, due to financial speculation, has prompted a major switch from liquid to ethane feeds on the crackers.
Propylene supply has therefore been reduced both by lower refinery runs, and by the switch to ethane feeds, as these produce virtually no propylene or butadiene. Lower cracker operating rates have also helped to tighten markets, particularly for butadiene.
The question ahead is now twofold:
• Will buyers still be interested in using propylene for its commodity applications such as packaging, if it is no longer price competitive?
• Can crude oil really maintain its current premium to natural gas?
The answers to these questions are really a zero-sum game. Those who get them right, stand to make a lot of money. Those who get their analysis wrong, will likely lose a lot of money.
The blog itself would be extremely cautious about ignoring affordability issues, and simply assuming current trends will automatically continue.