Ethylene cracking margins could fall amid capacity additions

04-May-10

From over US$400/MT, cracking margins for making ethylene from naphtha in Asia may plunge by 60% by the end of 2010. The opening of Shell’s petrochemicals complex in Singapore has added to the region’s volume, about 800,000 tpa of ethylene, 450,000 tpa of propylene and 230,000 tpa of benzene. Producers in the Middle East, China and Singapore are adding 26 mln tons of chemical cracking capacity by 2013, boosting global capacity by 13 to 144 mln tons from 2008. A supply glut will prevail globally with the expected onslaught of new capacities. Refiners worldwide postponed expansion projects and idled plants after 2008, as the global recession eroded demand and squeezed profit margins. New capacities coming up in the Middle East make use of ethane, derived from domestic and cheap natural gas, as feedstock vs the more expensive oil-based naphtha to ethylene technology used by Shell and Exxon in Asia. Middle East producers extract gas at lower prices, enabling them to take market share from naphtha units, hence the profitability of naphtha-based crackers will be severely affected amid the supply glut. The Chinese market will see a clash between lower priced supplies from the Middle East and traditional Northeast Asian crackers and new crackers coming up in Southeast Asia. At this time, maintenance and scheduled shutdowns in Northeast Asia, will take off line, about 22 Asian crackers, with over 13 mln tons in capacity.