Petrochemical markets in Asia likely to see increased competition in 2012

03-Jan-12
Petrochemical markets in Asia are likely to see increasing competition in 2012, amid low levels of economic growth in developed nations leading to redirection of products towards emerging regions, as per ICIS. Lower domestic gas prices amid shale gas development have led to the emergence of USA as a key player in the chemicals export market. This has changed the dynamic of global export flows, according to a report by HSBC Global Research. Since 2008, the US averaged polyethylene (PE) exports of 2.5 mln tpa is four times the average over 1990-2007. Shale gas development in USA has been accompanied by capacity additions in the Middle East, significantly adding to the base of low-cost product available for export. Last two years have witnessed demand growth and restocking that has allowed increased volumes from the Middle East to be absorbed, with limited impact on the market. Volumes of developed market are estimated to shrink in 2012. This will led to rerouting of products towards growth markets, putting pressure on prices and volumes for high-cost exporters. As this low-cost base now includes both the US and the Middle East, we expect to see intensifying competition for business in export markets – particularly in Asia, HSBC Global Research said. Asian chemical markets, meanwhile, will continue to be weighed down by the expected slowdown in the world economy in 2012, led by the eurozone that continues to struggle with its mounting debts and the US economy that remains unstable. Problems are particularly acute in the developed world, where economic growth of just 1.3% is expected in 2011, and 1.4% in 2012. “The emerging nations are not doing so badly. We remain positive on the outlook for China and India, even if China has lost some of the momentum it exhibited in 2010,” the research firm said. However, some of the smaller emerging nations – particularly some of the Asian exporters – are doubtless vulnerable to the deteriorating external economic environment. “If Europe goes into a recession, Asia’s income and exports will suffer,” DBS Group Research said in a research report. Demand for petrochemicals will likely be flat in some sectors, and slower in others that are directly linked to consumer goods, said Jurong Aromatics Corp CEO, adding that demand recovery will be underpinned by the strong momentum of growth in emerging market economies, such as China and Brazil. Leading into 2012, China is expected to dominate the global chemical scene with the highest revenue increases on a percent basis, with markets such as India, Brazil and South Korea not lagging far behind, according to Deloitte. Although China’s chemical industry still has some challenges to overcome, including low levels of industry concentration, limited capacity for innovation and energy efficiency, the Chinese government’s 12th Five-Year Plan will play a vital role in advancing the country’s chemical industry. Due to the highly cyclical nature of the refinery and petrochemical industries and their strong correlation with GDP growth and oil prices, gross refining margins (GRM), gross integrated margins (GIM) and petrochemical spreads in Asia are expected to fall in 2012, supported by lower demand and oil prices, according to Yousseff Abboud, analyst at Thailand-based Thanachart Securities. The restart of operations at refineries in Japan following the 11 March earthquake and tsunami will weigh on GRMs, with the remainder of shuttered units expected to come back online by the summer of 2012. Shell’s refinery complex in Singapore is expected to return to its normal rate in early 2012. This will impact GRM that is starting to fall and is expected to continue into 2012, supported by lower demand and oil prices.
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