New capacity additions, expansions, mergers and acquisitions in the polymer and plastics industry in 2016 have been summarised:
* The Rs.10,000 crore gas cracker project - Brahmaputra Crackers and Polymers Ltd. at Lepetkata in Upper Assam’s Dibrugarh district commenced production in India. GAIL is the main promoter with 70% stake, while Assam government, Oil India Ltd and Numaligarh Refinery have 10%t stake each in the company. Capacity will comprise 2,20,000 tpa of polyethylene and 60,000 tpa of polypropylene.
* South Korea's Hyundai Chemical, a joint venture between Hyundai Oilbank Co and Lotte Chemical, completed building a US$1.02 bln condensate splitter to produce mixed xylene and light naphtha. The 130,000 bpd condensate splitter in Daesan on the country's west coast will churn out 1.2 mln tpa of mixed-xylene and 1 mln tpa of light naphtha.
* The petrochemicals complex of Egyptian Ethylene and Derivatives Company (ETHYDCO) was unveiled in Alexandria in mid-August with a total investment of US$1.9 bln. The complex is set to operate with the capacity of 460,000 tons of ethylene, 400,000 tons of polyethylene divided into two production lines, a 200,000 tpa LLDPE/HDPE swing line, a 200,000 tpa HDPE line, and 20,000 tons of butadiene.
* The largest petrochemical plant in Latin America began operating in Nanchital, Veracruz. The US $5.2 bln joint venture project of petrochemical companies Grupo IDESA of Mexico and Braskem of Brazil, Proyecto Etileno XXI, will address a shortfall in the domestic supply of polyethylene.
* South Korea’s SK Advanced, a subsidiary of SK Gas, embarked on the production of propylene at its newly built factory in Korea in a bid to meet the burgeoning demand for propylene in China. SK Advanced is a joint venture between SK Gas Ltd. (45%), Saudi Arabia’s Advanced Petrochemical Co. (30%) and Kuwait’s Petrochemical Industries Co. (25%). The Ulsan facility is projected to produce 600,000 tpa of propylene.
* The Chatterjee Group (TCG) led by New York-based investor Purnendu Chatterjee signed an agreement to acquire a 90% stake in Mitsubishi Chemical Corp.’s Indian subsidiary, MCC PTA India Corp. Pvt. Ltd, for an estimated US$48 mln. This sale is in line with Mitsubishi Chemicals' decision to scale back its investments in commodity chemicals such as PTA to focus on other businesses.
* Indorama Ventures Public Company Limited announced acquisition of BP's petrochemical plant at Decautur, which will be renamed Indorama Ventures Xylenes & PTA LLC, for an undisclosed amount. The complex has capacity to produce 1 mln tpa of purified terephthalic acid (PTA).
* German chemical company Lanxess plans to buy US based Chemtura Corp. for US$2.7 bln, a deal that should help it expand beyond its synthetic rubber business. Lanxess said the acquisition, its largest ever, would expand its activities in additives for lubricants and flame retardants and strengthen business in North America.
* Sumitomo Chemical will begin production of polypropylene compounds for makers of home appliances and automotive parts in India . The annual capacity is planned at 5,000 tons at a Chennai facility at an investment outlay of approximately US$5-10 million.
*Specialty chemicals company LANXESS has started up a second production line for plastics compounding at its Gastonia, NC facility. The new line represents an investment of about US$15 mln and doubles the site’s capacity. It will produces the Durethan (polyamides) and Pocan (polybutylene terephthalates), which are used primarily in the automotive industry to manufacture lighter-weight plastic components that can replace metal parts in vehicles.
* Polyplastics Co., Ltd. has decided to expand its engineering plastics compound plant in Malaysia operated by Polyplastics Asia Pacific Sdn. Bhd. (PAP), a wholly owned local subsidiary headquartered in Kuala Lumpur. Additional production capacity of 9,000 tpa will be added at the plant in Kuantan, Pahang State, increasing total capacity to 35,000 tpa.
*Indorama Ventures Ltd. (IVL) acquired a majority stake in Dhunseri Petrochem. IVL is a Bangkok-based polyester producer founded by Indian-origin businessman Aloke Lohia.
* Teknor Apex Company acquired Plastic-Technologie-Service (PTS), a German-based custom compounder of thermoplastic elastomers (TPEs) and engineering thermoplastics (ETPs). PTS operates a state of the art manufacturing plant at Steinsfeld, Germany with more than 20,000 tons of installed capacity, as well as a technical support facility.
* RadiciGroup Performance Plastics signed an agreement for the purchase of the Engineering Polymer Solutions business of the American company INVISTA to further strengthen and expand its presence in both the American and European markets.
* Mexichem has acquired Vinyl Compounds Holdings Ltd. (VCHL), a leading U.K.based technical PVC compounds manufacturer serving a broad range of industries including: building and construction, pipe and profile manufacturers, footwear and consumer goods.
Petrochemical Industry Outlook in largest growing regions of the world as per Business Monitor International (BMI)
China: The decline in the value of the yuan, as well as market tightening in some segments, has benefited the Chinese petrochemicals industry, which has struggled with competitiveness. The result of rising domestic production will be a cut in imports and, in segments such as polyvinyl chloride (PVC) where China produces a surplus, rising basic polymers exports. This is our core scenario over the short term, and one that will lead to a glut in Asian petrochemicals supply that should be felt in 2017. However, with naphtha and ethane at a low price, in the long term the drive towards coal- and methanol-based chemicals will put the industry at a disadvantage.
Chinese petrochemicals output gathered pace in the first 8 months of 2016, with ethylene output up 6.6% y-o-y to 13.9 mln tons and primary plastic production rising 7.9% y-o-y to 66.4 mln tons. Plastic product volumes grew 5.2% y-o-y to 65.2 mln tons. Although petrochemicals output is rising, capacity utilisation for coal-based polyethylene producers was estimated at 65-70% in 2016, down from over 80% in 2015, while China's polypropylene (PP) operating rate was around 75% due to tighter supplies.
Petrochemicals-consuming sectors such as construction are in the weakest position. China's construction sector will continue to see a structural slowdown as the country shifts from an unsustainable investment driven model, to one that is more consumption-led. BMI forecasts China's construction sector to grow by an annual average of 4.2% between 2016 and 2025 in real terms, a significant slowdown from the 11.6% registered between 2006 and 2015. This will depress demand growth for a range of polymers used in the construction market, particularly PVC and polymer piping.
Project delays and sluggish industrial performance have undermined petrochemicals growth in India, as per BMI. However, the long-term outlook remains positive, even with reduction in BMI forecast for consumption growth. Low naphtha prices, a surplus of feedstock availability and a lack of self-sufficiency provide the basis for import substitution. The main issue is greater clarity on the government's regulatory framework for petrochemicals clusters, as well as reducing red tape that has bound up environmental approvals and land acquisitions. The Indian petrochemicals industry was adversely affected by an industrial downturn brought on by China's surplus industrial capacity. In the first 7 months of 2016, chemicals output grew by an average 2.2% and rubber and plastic was up 1.2%. Production indices suggest that in spite of capacity growth with newly opened plants such as BrahmaputraGas Cracker and Polymer, India's petrochemicals industry has yet to see any rise in output volumes.
Growth rates may have been higher had project targets been met in 2016. Bharat Petroleum Corp Ltd (BPCL)'s Kochi Refinery in Kochi, Kerala was due to be expanded to 310,000 bpd from the current 190,000 bpd in May, but was pushed back to possibly Q4-16. Propylene and ethylene, used as raw materials in the production of synthetic textiles, would be among the petrochemicals that would be produced at the proposed petrochemicals complex, which it aims to open in 2018. JBF is building a 1.25 mln tpa PTA unit at the Mangalore SEZ, which will supply downstream PET producers. It signed an agreement with BP for PTA technology licensing. The complex was due to come on stream in H1-16, a year behind schedule, but by Q3-16 was yet to be completed. BMI continues to believe that growth will strengthen in 2016 and beyond, with per capita petrochemicals consumption doubling in 2015-2020 and output growth set to reach 10% pa.
Ambit Capital, a Mumbai-based equity research firm, has officially estimated that the demonetisation-driven cash crunch will result in India's GDP growth crashing to 0.5% in H2 of financial year 2016-17. This means the GDP growth for six months, from October 2016 to March 2017, could decelerate to 0.5%, down from 6.4% in the previous six months. Further, it is estimated that during the October to December quarter- the GDP growth may contract, thus showing negative growth. However, Ambit is hopeful that a strong formalisation of the informal economy will ensue through 2017 until 2019 and this disruption could also crimp GDP growth in 2017-18 to 5.8 % from their earlier estimate of 7.3%. Demonetisation is expected to have long term impact on a number of sectors including automobiles, FMCG and a other businesses that thrive on cash. This in turn will impact the Indian polymer and plastics industry.
Amid the expectations of “feel-good” factor, India's Union Budget 2017-18 is expected to be different from the previous ones with a series of populist policies. We move into the New Year amid high expectations of a desire by the government to create a positive feeling for the future so as to boost domestic and international investor confidence.
Global economic growth remained soft in 2016 amid economic and geo political reasons such as Brexit, a coup d’état in Turkey, the ongoing civil war in Syria, potential policy changes in USA after the presidential elections, topped by demonetization announced in India in November. IMF has predicted global growth is projected to slow to 3.1% in 2016. The World Bank is revising its 2016 global economic growth forecast down to 2.4% from the 2.9% pace projected in January. World Bank has raised its 2017 forecast for crude oil prices to US$55 per barrel as members of the OPEC prepare to limit production after a long period of unrestrained output. Whether the rise is sustained will depend on how strictly OPEC members abide by the agreement, something they have not always done in the past. but what if US shale gas output increases and hampers the price rally?