Propylene term contract discussions in Asia for 2016 likely to conclude at larger discounts

06-Nov-15

Asian propylene term contract discussions for 2016 are likely to conclude at larger discounts than this year due to an increase in supply in the region, as per market sources in Platts. A source at a producer in South Korea estimated the discussion range for 2016 term contracts at a discount of US$10-15/mt to CFR Northeast Asia publication prices. Other sources put the range at a discount of US$9-20/mt. This is lower than the differentials negotiated for 2015 term contracts, which were heard to have been concluded at minus US$5/mt to flat for contracts concluded in January or February and flat to plus US$5/mt for those concluded in April or May, some market sources said. Other sources said they had heard of term contracts concluded in the range of minus US$10/mt to plus US$10/mt. A trader in South Korea said the bulk of this year's contracts were concluded in early January. The deepening discounts for 2016 follow an increase in propylene production capacity in Asia this year. An additional new plant startup in the first half of next year is expected to tip the balance even further on the supply side. SK Advanced, a joint venture between SK Gas and Advanced Petrochemical, plans to start trial runs at its new 600,000 mt/year propane dehydrogenation plant at Ulsan in South Korea in H1 2016. In 2015, around 2 million mt/year of new propylene production capacity started up. In China, Oriental Energy started up a 600,000 mt/year PDH unit at Zhangjiagang and Yantai Wanhua Chemicals a 750,000 mt/year PDH plant in Shandong, while in South Korea, Hyosung Corp. started up a 300,000 mt/year PDH plant in Ulsan and YNCC an olefins conversion unit in Yeosu that can produce 140,000 mt/year of propylene. Most of the new plants came online in the second half of 2015, contributing to weaker prices, which depressed production margins and in turn prompted PDH and OCU operators to cut run rates.Japan's Mitsui Chemicals shut its 140,000 mt/year Osaka OCU in October and South Korea's YNCC its 140,000 mt/year OCU in November.