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2013: A challenging year for the Indian petrochemicals industry

2013: A challenging year for the Indian petrochemicals industry

The year 2013 started more positively than the previous couple of years, with the threat of Euro disintegration receding amid positive data from China and USA supporting some signs of improvement in market sentiment and business confidence. Despite uncertainties, 2013 did see a pick up in global economic growth, with outlook for 2014 pointing to further improvement in growth from the advanced economies. A report from the OECD (Organization for Economic Cooperation and Development), predicts that, by the time growth is calculated for 2013, world economic growth will increase just 2.7%. This is down from a 3.1% increase in 2013. The last four years have seen a consistent trend of declining world economic growth: from 4.9% in 2010, to 3.7% in 2011, to 3.1% in 2012. For the past two years the southern eurozone countries (France, Italy, Spain, Portugal, Cyprus and Greece) have been enmeshed in trade-deficit caused depressions. According to the OECD report, this will be the second year in a row of negative GDP growth in the eurozone (-0.6% in 2012, -0.4% in 2013). UK would grow by 1.4% this year, an upgrade from its forecast in May of 0.8%. The OECD said weakness in the banking system was a major drag on growth in the Euro region. The potentially catastrophic crisis over the debt ceiling in the US and strong market reaction to its suggestion of tapering had also unsettled confidence.
The International Monetary Fund (IMF) cut its global economic growth forecasts, warning that the political impasse in the US over raising the debt limit could harm the world economy if it is not resolved. IMF predicts the global economy to grow 2.9% this year, mainly on slower growth in China, India, Brazil and other developing countries. IMF also lowered its outlook for US economic growth this year to 1.6%. Failure to raise the US government’s borrowing limit could lead to a default on US debt. That would push up interest rates, disrupt global financial markets and possibly push the US economy back into recession. The US is benefiting from steady consumer and business spending, the IMF said, fueled by a housing rebound, rising stock prices, and a greater willingness by banks to lend. Unless there are fiscal accidents, IMF expects recovery to continue. Europe’s economy is also benefiting as government spending cuts and tax increases ease. Many developing countries, particularly India, have been hurt by expectations that the Federal Reserve will soon slow its US$85 billion a month in bond purchases. This has caused investors to pull money from India, Brazil and other emerging markets as yields on US assets picked up. The IMF slashed its forecast for India’s growth to 3.8% in 2013 and projects that Brazil’s economy will expand 2.5% this year. India’s central bank has raised interest rates in an effort to stem the flow of money leaving the country, a move that has also slowed growth. Brazil’s economy has been hampered by poor infrastructure and high inflation. That has forced its central bank to also raise interest rates.

Q1 2013 saw a 25% drop in global naphtha prices. Platts Global Naphtha Index fell from US$707/mt on February 18, to as low as US$536/mt the week ended April 24. During the period, falling naphtha index has outpaced the Dated Brent price, which had fallen 17% during the same period, from US$118/barrel on February 18 to US$97 on April 17. In Q3 2012, prices in the US$3 trillion-plus global petrochemicals market rose 1.9% in September to US$1388/mt, the fourth consecutive month of price gains, according to PGPI report. On a year-over-year basis, the PGPI data showed petrochemical prices were up 2.3% from the September 2012 average of US$1357/mt. A 4% year-over-year decline was seen in ethylene prices, while propylene prices rose 13% year over year. Global propylene prices were supported by the €110/mt (US$141/mt) rise in European contract prices over the last four months, due in part to stronger polypropylene demand, planned or unscheduled plant outages, and persistently strong prices of naphtha, the main feedstock for steamcracker operators in Europe and Asia. In Jan 2013, WTI Nymex averaged US$94.8 in Jan, US$95.3 in Feb, dipped to US$93 in March and US$92 in April, moving up to US$94.7 in May, and spiking to US$104.6 in July, US$106.5 in August and Sept, before falling to US$100 in October, and US$93 in November.

Dated Brent And Naptha Price Trends

Asia has seen several new monomer capacities come onstream in 2013, mergers and acquisitions, consolidation in the compounds and masterbatch sector, delays, etc. These include:
New Capacities
ExxonMobil started up a new cracker at its Singapore petrochemical complex on Jurong Island with an ethylene capacity of 1 mln tpa.
China's Wuhan Petrochemical, owned by Sinopec, commissioned a new naphtha-fed steam cracker. The cracker, with an ethylene capacity of 800,000 tpa, will provide feedstock to a 120,000 tpa butadiene extraction unit, a 300,000 tpa of LLDPE and 300,000 tpa of HDPE unit. Taiwan's CPC started up its new No 6 steam cracker at Linyuan with a capacity to produce 600,000 tpa of ethylene, 300,000 tpa of propylene and 100,000 tpa of butadiene.
Start up is expected at China's Tianjin Bohai Chemical Industry at a new propane dehydrogenation (PDH) unit with a propylene capacity of 750,000 tpa. Shaoxing Sanyuan Petrochemical, with capacity to produce around 450,000 tpa of propylene, is also on track to start up a PDH unit at Zhejiang in December 2013.
Singapore's SP Chemicals commissioned a new 320,000 tpa styrene plant in Jiangsu, China. Xianglu Petrochemical has started a new 4.5 mln tpa purified terephthalic acid (PTA) plant.
The Philippines' JG Summit Petrochemical Corp has bought its first naphtha cargo from the spot market, as it prepares to start up its naphtha cracker, the first in the country, with a capacity of 320,000 tpa of ethylene.
Reliance Industries (RIL) brought onstream a 100,000 tpa PVC plant in Dahej, Gujarat.
Westlake Chemical has awarded Technip engineering and procurement contracts for the expansion and modernization of the ethylene cracking furnaces and the recovery section at Calvert City. Ethylene capacity will be increased by 40% from 450 mln lbs pa to 630 mln lbs pa and will use ethane feedstock instead of propane.
Mitsui Chemicals, Inc. has started commercial operations at the Lotte Mitsui Chemicals, Inc. polypropylene catalyst plant in Yeosu, Korea on April 1. The plant is part of an equal joint venture with Lotte Chemical Corporation. Lotte Mitsui Chemicals uses Mitsui Chemicals' cutting edge catalyst manufacturing technology to produce polypropylene at the Lotte Chemical owned petrochemical works in Yeosu, Korea.
Lanxess has run a production campaign of bio-based PBT in the world-scale production plant using 20 metric tons of bio-based BDO made with Genomatica’s commercially-proven process. The world-scale PBT plant, with a capacity of 80,000 metric tpa, is located in Hamm-Uentrop, Germany, and operated as a joint venture in which Lanxess has a share of 50%.

Shale Gas

To capitalize on the shale gas revolution in the United States, the BASF Total Petrochemicals joint venture (40% Total, 60% BASF) revamped the Port Arthur steam cracker in Texas to process ethane, found in abundance in U.S. shale gas. Since early April, the BTP steam cracker has the capability to produce up to 40% of its ethylene from ethane and another 40% from butane and propane. In addition to this project, BTP has also begun building a tenth ethane cracking furnace, scheduled to come on stream in Q4-2014. The new furnace will improve the steam cracker's availability and increase its cracking capacity by nearly 15%, making it even more efficient.
YPF SA, Argentina's largest company and Dow Chemical Co.'s Argentine unit have signed a final accord to invest US$188 mln to jointly develop shale gas at the country's Vaca Muerta formation. Dow will invest US$120 mln over a year while YPF will invest US$68 mln to develop 16 shale gas wells.
YPF and Chevron Corp. formed a US$1.24 bln shale partnership in July to tap the world's second-largest shale gas deposit and fourth-largest shale oil reservoir at Vaca Muerta in southwestern Argentina.
China Petrochemical Corp.(Sinopec) has closed a US$1.02 bln deal with Chesapeake Energy Corp. With this, the second- largest Chinese energy producer has acquired a stake in a shale oilfield for less than one-third of its estimated value. Sinopec will take a 50% interest in 850,000 acres Chesapeake controls in the Mississippi Lime formation.

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