Current light olefins market reflects mixed global demand growth environment

04-Nov-10

As per Chemical Market Associates, Inc. (CMAI)’s 2011 World Light Olefins Analysis: The current market situation still reflects a mixed global demand growth environment – that is rapid expansion in developing regions and slow growth in developed regions - following the severe global economic recession in late 2008 and H1-2009. As has been anticipated for the past few years, massive amounts of new steam cracker capacity have come on-line in the Middle East and Asia in 2008-2010, resulting in nameplate operating rates below 85% during these years. However, the full impact of these new capacities has yet to be felt in the olefin markets, because Asian demand growth has been better than expected in 2009/2010 (due to the successful Chinese economic stimulus package) and because many of these new projects were delayed many months beyond their planned start-up dates and/or were slow to achieve high utilization rates. The full impact of the current capacity wave is expected to be realized in the market in 2011, when global nameplate operating rates will remain below 85% and profit margins will move to cyclically low levels for marginal producers. Absorption of surplus capacity will proceed gradually aided by strong projected demand growth, a sharp decline in future capacity additions as well as closures of smaller, less efficient facilities. A recovery is expected to begin in 2012-2013 with peak operating rates and profit margins returning in 2014-2015. Growth in ethylene derivative consumption will be mainly driven by the rapid economic development of numerous transition countries; in particular China and increasingly also India. Per capita consumption in North America and West Europe already stagnated or barely grew during the last decade, and a recovery from the sharp declines during the global recession will likely be limited by imports of finished goods, mainly from Asia. Propylene's higher future price valuations are expected to reduce the cost advantage of its primary derivative, polypropylene, thus shifting its competitive advantage to its performance as a polymer. Consequently, longer term growth rates will remain below the fast pace of expansion typically associated with polypropylene in the past. Other propylene derivatives that are expected to register substantial demand growth over the next five years, include acrylic acid, cumene/phenol, and propylene oxide.