Ethylene prices rebound from 18 month lows in Asia

31-Aug-05

China is increasing imports of raw materials due to increased seasonal production of toys and consumer goods for exports. As Asian plant outages continue to restrain supply and seasonal demand from China rises, Asian ethylene prices are rebounding from an 18 month low. Crude oil prices have touched US$71 as Hurricane Katrina disrupts supplies from the Gulf of Mexico. Higher petrochem prices may help producers endure a 36% increase in crude oil costs in the past three months. DEMAND: Converters in China held off purchases during the three months through June due to inventory build ups. However, as seasonal demand picks up, demand from China will boom. Petrochemical imports typically rise in Q3 of every year, as processors prepare for Christmas demand from Europe and the U.S. China's domestic ethylene production in July rose 46% to 672,100 tons and 16% in the first 7 months to 4.2 million tons. However, a rise in domestic supplies is still not sufficient to keep up with the annual demand growth in China, making imports necessary. SUPPLY CONCERNS: In Japan and South Korea, there may be as many as four maintenance shutdowns. Affected by plant maintenance shutdowns, Japan's ethylene output fell for a fourth month, declining 3.3% in July, as several, the Japan Petrochemical Industry Association said Aug. 26. Water shortage in Thailand's biggest manufacturing center near Bangkok may worsen later this year because of below-average monsoon rainfall and depleted reservoirs, affecting production at PTT Pcl and Thai Olefins. In Taiwan, state-owned Chinese Petroleum Corp. cut supply to customers by as much as 20% because of a fire at its 230,000 tpa ethylene plant. The fire occurred when the plant was restarted after a one-month shutdown. The plant is ecpected to restart in September. As per the petrochem cycle, demand is expected to peak in 2007- but this is on the basis of additional supply coming on stream. Currently this does not seem to be the scenario as half the global planned capacity until 2010 is in Iran and Saudi Arabia, and two-thirds of those plants could be delayed by three months to two years. Also on the demand side, despite new capacities, demand from China does not seem to be waning and the giant still needs to import over half its raw material requirements.