Petrochemical firms risk creating a glut of high-end products in Asia as they invest to move up a value chain, threatened at the bottom end by cheap U.S. ethylene, as per Reuters. Shale gas crackers in the United States can produce ethylene at less than half the cost of the naphtha-fed crackers typical in Asia. Cheap U.S. ethylene - a basic building block for plastics and textiles - means Asian plants have to rethink their output mix.
Companies including Taiwan's Formosa Petrochemical Corp, South Korea's Lotte Chemical Corp and Royal Dutch Shell PLC are building large capacities of specialty chemicals near main demand growth centres such as China. The strategy makes sense for one firm but could be self-defeating if adopted by the majority. "The problem is that people have assumed that demand will recover, so they have carried on building plants on expectations new supply will be needed," said Paul Hodges, chairman of consulting firm International eChem. "Instead, demand is flatlining." But moving up the value chain is not without its own set of challenges. Asian plants have to earn enough from the high-end grades, currently twice as expensive as ethylene, to compensate for selling the ethylene that makes up about a third of their output at a loss. And the spread is likely to narrow as supply of high-value grades rises.
Global capacity addition of paraxylene, produced from aromatics and a key raw material in synthetic fibres, is set to more than double to 5.98 mln tpa by 2015, far exceeding demand growth of 4.2 mln tpa. That compares with capacity addition of 2.3 mln tpa in 2011 versus demand growth of 3.07 mln tpa. "Overall, we estimate that paraxylene is currently at the beginning of its downturn and over the next couple of years, producers will face capacity expansion far exceeding demand growth," said Ashish Pujari of petrochemicals consultancy IHS Chemical. He expects global paraxylene capacity will more than double by 2015-16 and average operating rates fall to around 75%, from about 82% in 2013.
13-May-13 
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