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With a growing middle class and rise in urbanization, Asia to drive global olefin demand

With a growing middle class and rise in urbanization, Asia to drive global olefin demand

30-Jul-14

Asia’s growing middle class and increasing urbanisation has buoyed the region’s chemical demand, particularly for olefins. But IHS Chemical has said that not all countries are equal in their demand growth. The rise in disposable income for Asia’s middle and upper classes is causing consumption of durable and non-durable goods made from polymers and chemicals to rise. The growth of households with incomes greater than US$5000, a threshold considered middle class in the region and regularly associated with urbanisation, is greater than the general population growth and fastest in countries such as China, Indonesia and Thailand.

Tony Potter, vice president of Asia Pacific, IHS Chemical said, ‘across this income threshold is the time when people buy their first refrigerators, televisions, and other appliances. Ultimately, they buy their first car. In doing so, they essentially become new customers of the petrochemical industry. In China, an estimated 28 mln people have been crossing this threshold each year, with a further 23 mln in India. Throughout Asia, there are approximately 70 mln new chemical customers added each year.’
Potter opines that new crackers based on shale related ethane in North America or low cost feedstocks in the Middle East grab headlines, however, Asia is set to add more olefins capacity by 2020 than the two regions combine. Asia is the engine of global demand for olefins. At IHS Chemical, we forecast global incremental demand growth for ethylene and propylene combined will exceed 10 mln tpa during the next five years, with Asia accounting for 60% of demand growth. Yet, now all Asian countries are experiencing equal growth in chemical production. China is expected to be responsible for much of the investment. IHS Chemical expects 53 olefin projects to start up in China by the end of 2018. Many are coal to olefins (CTO) or methanol to olefins (MTO) projects, but there are also a substantial number of on purpose propylene projects. The coal based units are based both inland, where coal is available at lower prices, and in coastal provinces, where coal prices are higher because of transportation costs and exposure to the international coal market. Several CTO/MTO plants are already operating but, the CTO/MTO rush will be concentrated in 2015-2017 and tail off thereafter. IHS believes the coal based builds will likely be constrained by water availability and environmental concerns so therefore be finite. Capital costs are substantial, but once the units are built, operating costs will be sufficiently low to position these Chinese units in the lower cost half of the global supply curve.’

India has much potential for growth according to IHS, however olefin investments have not kept up with the demand and derivative imports have been growing. Elsewhere in Asia, cracker investments are difficult to justify in the absence of advantaged feedstocks. Malaysia, Indonesia and Vietnam, driven by growing domestic deficits of base chemicals and polymers, are well studying projects for start up during 2018-2022. However, the story is different farther north in Japan and Taiwan, where the olefins industry is consolidating and reductions in capacity are expected. Propylene capacity addition in Asia during 2013-2018 is expected to amount to 23 mln tons, 85% of which will be in China. Potter said, ‘due to this dominance in new capacity occurring in China, it might be tempting to conclude that the rest of the world does not need to invest in new propylene units, but that would be misguided. In reality, it is more likely that much of the Asian new build capacity will run intermittently or at low operating rates. Much of the coal and all the naphtha based propylene is tied to ethylene production, with relatively limited control over the ethylene/propylene production ratio. Discretionary propylene production is from coal to propylene/methanol to propylene, propane dehydrogenation (PDH), and metathesis units. The dependence on imported propane in a region that has historically had the highest propane prices in the world, results in less than compelling economics, suggesting that the new PDH units will act as swing capacity.’

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