Weak demand and a supply glut anticipated by Middle East new capacities to keep operating rates at Asian crackers low

Supply constraints and robust demand propelled petrochemical prices to all time highs in July. Concerns of further price hike led to inventory stockpiling with most players. However, the financial crisis triggered an enormous slowdown in demand, plunging prices to near rock bottom in barely 2-3 months. Since the processors who are saddled with huge stockpiles prefer to draw on their stocks to meet the needs of reduced production as they wait for demand to return to normalcy, demand in Asia has taken a hit. Cracker operators have an option to shut their plants or reduce operating rates in a bid to curtail the free fall in olefins and derivative prices. Operating rates at most Asian crackers have been reduced by almost 20-30% due to reduced demand caused by the financial crisis. Low operating rates at these naphtha crackers are expected to persist through 2009 as a result of weaker demand and additional capacities coming on stream in the Middle East. The ethane-based cracker operators scheduled to come onstream in the Middle East include: Saudi Arabian PetroRabigh's 1.25 mln tpa cracker and Yansab's 1.3 mln tpa are expected to come on stream by Q1-09. Eastern Petrochemical Co (Sharq)'s 1.3 mln tpa cracker in Al Jubail, and Qatar Petrochemical Co's JV 1.3 mln tpa cracker in Ras Laffan are scheduled to come on steam in Q2-09. Will this lead to a scenario of further consolidation among naphtha-based crackers in Asia in a bid to salvage their competitive edge getting eroded by the start up of ethane-based crackers in the Middle East?
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