Rising feedstock costs to restrict demand growth for petrochemicals

Demand growth for petrochemicals is estimated to be restricted between 4-5% on rising prices of ethylene, propylene and other basic petrochemicals, as per a new report from Global Research. Figures indicate that the foremost increase in petrochemical production capacity was witnessed in 2005 and 2006. Increased feedstock prices narrowed growth to 2.5% in 2007. This estimate is based on the expectation that crude oil price will remain on the higher side- ranging between US$100- 110 per barrel in 2011, compared with Q2-2008 average prices of US$117.2 per barrel. The build-up of output, primarily from Mena and China, at a time when demand is gradually dropping, has caused many analysts to forecast that the Gulf's petrochemical industry is in danger of facing a downturn in the next two to three years. Long-delayed Middle East projects are close to start-up. In mid-June, the 10th Olefin Project of Iran's NPC with a capacity of 1.3 mln tpa of ethylene, 305,000 tpa of propylene and 300,000 tpa of HDPE, LLDPE and PP, was inaugurated at Assaluyeh. Around 70% of output is designated for Asia. Combined petrochemical production capacity in the Middle East and North Africa (Mena) is currently at 84.7 mln tons- about 66% of total world capacity, making the region the largest petrochemical producer in world. The Mena region continues to initiate newer mega expansion programs, at a total investment outlay exceeding US$92 bln, with capacity slated to rise to 90.9 mln tons in 2008 and 104.1 mln tons in 2009. Major petrochemical capacity expansion is expected in Saudi Arabia which will account for 65.1% output in 2008. In Saudi Arabia, start-up of the Petro Rabigh joint venture of Saudi Aramco and Sumitomo is expected for October 2008, with 70% of the 600,000 tpa LLDPE, 300,000 tpa HDPE and 700,000 tpa PP output earmarked for Asia. Kuwait is expected to contribute 22.5% of output. Capacity in Mena will further increase by 3.4 mln tons in 2012 as expansion projects in Saudi Arabia and Qatar come on stream. The total expected petrochemical products increase of 29.9 mln tons is based on the addition of 16.2 mln tons of basic chemical olefins, 4.9 mln tons of basic chemical aromatics and 8.8 mln tons of basic chemical oxygenates. China, the world's third largest petrochemicals market, is currently undergoing extensive expansions in ethylene capacities, which will add almost 6.6 mln tons of ethylene between 2008 and 2012. Ethylene capacities in China are planned to increase by 11.4 mln tons to 11.6 mln tons between 2008 and 2016. China's ethylene output will go up from 9.6 mln tons in 2006 to 14 mln tons to 18 mln tons by the year 2010. Most Chinese crackers will be naphtha based which will result in a rapid growth of heavy feedstock consumption and this will exert upward pressure on international naphtha prices.