2009 World Light Olefins Analysis

The massive buildup of ethylene capacity in the Middle East and Asia is progressing at a rapid pace and is sending the industry into another down cycle. From 1995 to 2008, ethylene capacity increased by more than 22 mln metric tons in Asia/Pacific, and by more than 13 mln tons in the Middle East. By 2015, these regions are projected to add an additional 41 mln metric tons of ethylene capacity. With a significant cost-advantaged feedstock base, ethylene production in the Middle East will rank as the most competitive in the world. Given that the vast majority of this production targets export markets, this surge in supply will dramatically change trade dynamics. Ethylene and derivative capacity investments in Asia are primarily driven by the region's strong desire to be more self-sufficient in petrochemical building blocks and supply the rapidly growing consumer goods manufacturing base operations. The interplay between these somewhat conflicting strategies in Asia/Pacific and the Middle East will invariably create dynamic conditions in the global ethylene and derivatives markets. CMAI experts forecast that near term crude oil and natural gas values could help North America olefin derivative units remain competitive in the global market. From the mid-1990s to the early years of the current decade, the international market share of North American ethylene derivatives was on the decline. Major shifts in global crude oil markets and North American energy market dynamics had a significant impact on the competitiveness between different world regions, and it was expected that there would be a continued decline in North America's net ethylene equivalent exports. Current energy market dynamics have returned the region to a strong global competitive position as North American ethylene competitiveness is indirectly linked to the region's BTU natural gas prices relative to those for crude oil. The impact has been a turnaround in the current and forecast net equivalent trade position for North America and is critical to its future well-being. At the same time, on-purpose propylene production continues its rapid growth. BioFuels and fuel efficiency mandates will impact gasoline demand, and, in turn, refinery propylene production. The shortfall in propylene supply will largely be met by on-purpose propylene. Several new technologies for producing propylene have recently been brought on-stream or will be commercialized in the next few years, including production of the first propylene produced from coal in China. While the Middle East does not enjoy quite the same relative cost advantage in propylene as in ethylene, the Middle East will still have a significant impact on the global propylene market in the coming years due to heavy investment in on-purpose propylene technologies. Chemical Market Associates, Inc. (CMAI) has completed World Light Olefins Analysis, an annual global study that covers the future outlook for supply, demand, production, capacity, trade, pricing and profitability of the global ethylene & propylene markets from 2003 to 2013. The recent volatility in global financial markets and dramatic fluctuations in energy prices have had a significant impact on the ethylene and propylene petrochemical value chains. Due to the current global economic uncertainty, an outlook of ethylene supply/demand under a global recession scenario has been added to the 2009 analysis. This outlook shows the impact a more pronounced economic slowdown would have on what is already expected to be an oversupplied market during the forecast period.