Chemical Industry Summary
After trading in a stable range of US$5/Bbl. for several months, the last week has seen global crude oil prices soften roughly 10% with WTI prices now trading below US$48/Bbl. The current weakness of pricing is related to recent inventory and production data that have cast doubt on the potential for global crude oil rebalancing in 2017. It is increasingly unlikely that WTI prices will achieve the US$60/Bbl. target by the end of the year as some forecasters have called for. The key issue is not demand, but supply as US shale oil producers have shown an ability to quickly ramp up production and achieve profitability at low oil prices. Compliance with OPEC production targets has been good thus far, but as time goes on, the agreement becomes more likely to unravel. In the US, efficiency improvements have driven down well costs significantly as companies have repeated cited in their Q2 financial conference calls.
The first US grass-roots cracker, the Oxy/Mexichem unit has started up and will be followed by three others in 2017. Ethane requirements for these crackers, in addition to requirements for recent and planned debottlenecks, will increase ethane demand by about 300,000 Bbl./d. Along with an anticipated 200,000 Bbl./d of exports to Europe and Asia, ethane supply/demand will significantly tighten in the next 12 months setting the stage for price increases.
Macroeconomics and Geopolitics
Americas
A Macroeconomic indicator for the US continues to trend positively for the US, but expected 2017 GDP expansion of near 2.0% is significantly under the current administration’s nominal target of 3.5%. In early March, the US stock market hit an historic high with the Dow Jones Industrial Average topping 21,000 for the first time. The market’s rise has since cooled a bit, coincidence with the easing of energy pricing.
The Atlanta Fed now projects Q1 growth of only 1.2%, a bit below consensus estimates. In its current forecast, the Conference Board expects the full-year 2017 GDP growth of the US economy in 2017 to be 2.1%, down 0.2% from the February estimate. The forecast calls for accelerating economic activity in the US throughout the year.
The US jobs report for February came in at 235,000 jobs added, a very positive result and nearly flat with January’s revised result of 238,000 jobs added. The construction industry added 58,000 jobs and the manufacturing sector added 28,000 jobs as generally mild weather helped with an early start for the US construction season.
The unemployment rate dipped down 0.1% to 4.7%. Work force participation edged up slightly as more discouraged workers have decided to re-enter the workforce. The labor participation rate of 63.0% also edged up 0.1%. Spurred by the positive jobs report in February, on March 15ththe Fed increased interest rates by 0.25%to a range of 0.75% to 1.0%. After the December rate increase, the Fed had signaled that three more interest rate increases totaling 0.5% to 0.75% were likely in 2017.
In February, the US manufacturing PMI index improved to 54.2, down slightly from January, but still in strong expansion mode. In February, US auto sales of light cars and trucks were 17.47 million units, flat with both the January result and last year’s February number. US housing starts in February were very strong at 1,246 thousand on a seasonally-adjusted basis, up 10.5% from last year. In its March forecast, the NAR (National Association of Realtors) is projecting annual increases of 8.7% in each year. Existing home sales in January were 5.69 million. Average housing prices for existing home sales in January was US$228,900, up 7.1% from last year.
Mexico’s PMI in February of 50.6 was barely in expansion territory, similar to the last several months. US President Trump’s trade policies could prove to be highly significant for Mexico, the US largest trading partner. Canada’s PMI of 54.7 recorded in February continued its run of strong months and was at its highest level since December 2014.
Brazil’s manufacturing sector recorded a PMI of 46.9 in February, improved from the level of 44.0recorded in January. While at a 13-month high, this result is still in contraction territory. The Brazilian manufacturing sector has been in contraction territory since the end of 2014. In its Q4 forecast, the IMF expects Brazil’s GPD to fall 3.2% in 2016, following a 3.8% drop last year. The IMF does not expect a return to 2% growth until 2019.
Europe
European elections in the very near term are quite significant in terms policies related to trade, immigration, and EU participation. In many respects, election choices mirror the recent US presidential election in terms of potential policy swings to the right of the political spectrum. The Dutch election currently underway will decide is far-right leader Geert Wilders and his anti-immigrant policies will prevail. In France, a potential run-off election scheduled for May 7thcould come down to head of the National Front, Marine Le Pen, Republican candidate Francois Fillon, or social liberal candidate Emmanuel Macron. Ms. Le Pen has advocated for France leaving the European Union.
The European economy continues to improve in part due to continued economic stimulus from the ECB. Growth in Europe has continued to move closer to that of the US. For 2016, the European Union expects GDP growth of 1.7% as final numbers are tallied. For 2017/2018 the EC expects GDP growth at 1.6% and 1.8%, both estimates increased 0.1% in recent weeks. In December, the €2.3 trillion stimulus program was extended for 9 months.
For February, Eastern Europe and Russia’s PMIs continued to be in expansion territory, but at incrementally lower levels. Russia’s manufacturing PMI dipped to 52.5 in February after registering a 70-month high at 54.7 in January. Poland’s manufacturing sector has been in expansion for nearly two years. For February, Poland showed a manufacturing PMI of 54.2 nearly flat with January’s result.
Asia
China’s Q4 GDP growth came in at 6.8%, slightly ahead of the expected level of 6.7% and in the middle of the targeted range of 6.5% to 7.0%. The current growth target for 2017 GDP is 6.5%. February’s PMI index for China accelerated to 51.7, ahead of January’s 51.0 result. Higher exports and production activity drove early 2017 improvement. Chinese imports in February were quite high with an unusual deficit of US$9.15 billion recorded. This reflects stronger commodity pricing and good demand. Surveys of business optimism are positive in the near-term as the country restructures its economy and executes its anti-corruption policies.
China’s auto production in January was 2.37 million vehicles, up 16% from the same month in 2016. January sales of2.52 million vehicles are significantly ahead of those in January of 2016, up 23% for the one-month period. For the full year of 2016, auto sales of near 28 million are up 14% from last year, a significant rebound from 2015 that saw 24.5 million vehicles produced.
Polyolefin prices in Asia remain stable reflecting stable oil-based feedstock pricing and firm demand. Thus, far in March, Far East Asian HDPE blow modeling prices have increased slightly, to a range of near US$1,130 to 1,180/MT. Spot ethylene prices in SEA are currently near US$1,100/MT, down US$50/MT in the past two weeks co-current with crude oil declines.
In the last month, spot propylene and butadiene pricing in SEA have come off peak levels that were see in mdi-March. Propylene spot prices are currently near US$900/MT, down US$50/MT from peak. Current injection molding PP in SEA remains in the range of US$1,100/MT to US$1,150/MT providing a spread for PP of near US$250/MT. Chinese propylene prices have remained volatile, recently trading in a range of US$900/MT to US$1,100/MT.
Since the beginning of March, SE Asian butadiene spot prices have come down significantly from their peak levels that we near US$3,000/MT throughout February.
Feedstock – Crude Oil
For February, Saudi Arabia reported production of 10.01 million barrels per day of oil, an increase of 263,000 barrels per day from January, but in keeping with its commitments at the November 30 meeting in Vienna. A large portion of this increase reportedly ended up in storage. OPEC reported February’s production at 32.0 million barrels per day, representing an 85% adherence to the total production target cuts. This was down from January’s production level of 32.14 million barrels. At the IHS-Markit CERA energy meeting in Houston in early March, Saudi representatives stated that while this nation had taken the deepest cuts, it would not tolerate freeloading by other countries. The next benchmark will be in March as an OPEC-appointed committee will review compliance results my members. In May, OPEC could decide to extend the production cuts beyond the initial six-month period.
For February, Reuters reported that Russia’s reported production of 11.11 million barrels per day was essentially flat with January. While these two months were approximately 100,000 barrels per day lower that December, the first month of targeted cuts, it was not close to the 300,000 Bpd reduction that was pledged. It appears that the global oil market may not re-balance in the second half of 2017 as many have predicted, but that it may take longer to bring inventories under control. This is especially true if the current production cut-back agreement unravels.
As of March 13th, WTI spot prices in the US were near US$48.30 per barrel, down about US$5/bbl. from the recent tight trading range seen since December. Analysts attributed this to a market reaction to global and US inventory levels that have proven to be stubbornly high, despite production cuts. NYMEX futures prices have also retreated. On March 14th, the December 2017 NYMEX futures price is only near US$50/Bbl.
The DOE reported US crude production for the first week in March at 9.1 million barrels per day, up about 500,000 Bpd since mid-November. US shale-based crude oil production has responded quickly to incrementally higher pricing. Some producers are now reporting break-even drilling costs in the US$35-US$40/Bbl. range as drilling efficiencies continue to improve. Drilling and well completion activity has accelerated, particularly in the Permian Basin area.
For the week of March 3rd, US crude inventories not in the SPR (Strategic Petroleum Reserve) were 528 million barrels, an increase of 50 million barrels, or 10% since the first of this year. For the week ending March 10, Baker Hughes reported that the US total rig count (oil and gas directed) was up 39 from last month to a total of 768. Since the beginning of May of 2016, the total rig count is up 90% from the May-2016 low of 404. In the recent financial reporting season, many shale-based producers cited improved drilling efficiencies including expanding lateral distances, increase number of wells per platform, and more concentrated well spacing. The current expectation of the EIA is that US crude production will increase by 109,000 Bpd in the next month.
Feedstock – Natural Gas & NGLs
Thus far in March, US natural gas prices have strengthened by nearly US$0.50/MM BTU and have currently topped the US$3.00/MM BTU benchmark. A late season cold spell has resulted in 68 billion SCF of withdrawn from underground storage the week of March 3. This contrasts with a mild re-injection the prior week. The current level of underground storage stands at 2.295 trillion SCF, representing 54.6% of total capacity. This level is 27% above the 5-year mean storage level for natural gas for this time of year.
Ethane spot prices for February averaged near US$0.25 per gallon, up about 3c/gallon. With the current excess of ethane, prices tend to track natural gas on an energy-equivalent basis. The EIA has reported total volumes of ethane exports in 2016 were 34.7 million barrels, up 80% from 2015 and at about 8% of domestic cracker usage. These exports are equivalent to 95,000 barrels per day. Exports are now supplied out of Enterprise’s new Houston terminal. With rejected ethane near 500-600,000 Bbl./d, these volumes are not having much impact on pricing. However, Incremental exports are expected to increase ethane to 200,000 Bbl./d by the end of 2017 and then up to 300,000 Bbl./d by 2018.
It has been reported that the new Oxy/Mexichem cracker is in commissioning/start-up mode. Ethane requirements of 40,000 Bbl./d are associated with this cracker. By the end of 2017, four additional US crackers are expected to come on-line requiring 200,000 Bbl./d of ethane.
The oil-to-gas price ratio has softened to below 16:1, reflecting firmer gas prices and recently reduced oil prices. As a reminder, the economic equivalent price for cracker feedstock is near 8:1. US ethane crackers currently remain advantaged, but not by a large margin as in the near past.
For the week ending March 3, the EIA reports that US propane/propylene inventories were 45.2 million barrels, down 8% from last month, and down 27.4% from a year ago. This is cited as a contributing factor for the recent strength in US propylene pricing. The current inventory trends reflect strong domestic demand (weather related) and increased US export capability. Spot prices for propane are currently near US$0.68/gallon, up aboutUS$0.23 per gallon from last year, but still below international prices.
US Olefins & Polyolefins
US contract ethylene prices for January settled at up 1.25cents/lb., resulting in a net transaction price of 29.5cents/lb.for the month. Ethylene prices increases reflect the recent increase in feedstock prices, both for ethane and crude oil-based feeds. In addition, three operating issues including DuPont’s Orange cracker’s unplanned 2-week outage has reduced supply. While LyondellBasell’s Corpus Christi cracker is now back on-line following an extended turnaround that included an expansion, the company have reported that an operational issue will prevent the newly expanded cracker from running at its new capacity until modifications are made. The new Oxy/Mexichem cracker is reported to be in the commissioning process and is expected to start up in the first half of 2017. Spot ethylene prices have moved up from December’s average near US$0.25/lb.to US$0.32/lb.in January and are currently in the mid-30’s in February.
US contract propylene prices moved up 10.0cents/lb.in January with contract pricing at US$0.40 per pound for chemical grade and US$0.415/lb.for polymer grade. January spot prices for propylene averaged near US$0.48/lb., up US$0.20/lb.from December. Although there continue to be minor supply-side issues, February spot prices have stabilized in the mid-40’s area. February propylene contract nominations by producers are up 6-7cents/lb., but customers are pushing for a lower settlement.
The US contract butadiene price settlement was split in February with four settlements in the range of up 26cents/lb.to up 31cents/lb.The weighted average benchmark contract price contract price of near 93cents/lb.is over three times the level of 29cents/lb.seen last March.
CMR forecasts that US ethylene cash margins for US light crackers will be US$0.144/lb.in Q1, up about 1cents/lb.from Q4 based on higher ethylene pricing, higher feedstock cost, and stronger co-product contributions.
In January, US contract PE prices rolled over, following decreases of 2cents/lb.in December and 3cents/lb.in November. However, the proposed 5cents/lb.increase for PE in February looks attainable based on firm international demand and low producer inventories.
US exports of PE in December of 434 thousand MT were up 16% from November, reflecting the end of the fall turnaround season. On a YTD basis, net exports in 2017 were up 2.3% from a year ago. Total US PE export volumes of 5.3 million MT were up 3.8% over 2016. Gross PE exports represented from the US represented 26% of industry capacity in 2016.
US polypropylene exports in December were 120,000 MT, up 44% from November, and up 40% over the full-year 2016 average. from a year ago. Imports of 14 thousand MT, down 26% from November. Net exports of PP in 2016 were nearly flat with 2015 at near 11,000 MT per month.
Contract prices for US PVC in January rolled over, with benchmark contract near 74cents/lb.For February, the current proposal is for a price increase of 4cents/lb. However, flat raw materials will likely support a portion of this increase.
European Olefins & Polyolefins
For March, European the contract ethylene price €1,035 settledby€15/MT. Since the first of the year, spot prices for ethylene in NWE have firmed about €200/MT to the area of €1,120/MT. Contract European propylene prices were up €50 per MT for March, the third such increase in the last three months, to a level of €865/MT. Since the beginning of February, spot propylene is up €230/MT, and is up €330/MT on a year-to-date basis. Current spot prices, FID NEW are near €1,0000/MT.
European contact butadiene prices for March were again up strongly, this time by €350/MT from February to €1,750/MT. However, spot prices appear to have come down from peak levels see in late February that were near €2,750/MT. Current spot pricing is now closer to €2,000/MT.
The European benzene contract price for March is down €46/MT to a €937/MT reflecting the recent softness in crude oil. However, this is still 56% higher than a year ago, and additional increases appear likely in the coming months.
Polyethylene prices in Europe remain firm. Prices for HDPE injection molding grade for NWE thus far in March remain like February levels of near €1,250/MT, in a range of up €75/MT to €100/MT from the beginning of year.
Global Chlor-alkali
The US Chlorine Institute reported that US chlorine production in January was 1.06 million short tons, up 3.5% from last year and up 1% from December. Reported operating rate of 88% was relatively high and reflected a recent industry capacity shutdown. For the entire year 2016, US chlorine production averaged 84% of effective capacity. Recent movements of export prices for chlorine-containing PVC intermediates VCM and EDC have been positive. In 2016, caustic prices improved for seven consecutive months, and producers implemented a significant portion of the announced US$40/ST Q1 increase. In addition, an increase for caustic prices of US$60/ST has been announced for the second quarter. Spot prices for export caustic in January averaged US$370/ST, up 34% from last year.
Eurochlor reported chlorine production for Jan 2017 at 841,277 MT, up 2.4% from last year. Operating rates were reported at 83.9%. European chlorine Production for the entire year of 2016 of 9.38 million MT was 2.1% below last year and represented an overall 80% industry operating rate. At the end of the year, caustic stocks were reported to be only 200,623 MT, 18% below last year, near their lowest level in over 10 years. Inventories are beginning to reflect permanent shutdowns and conversions associated with the phase out of mercury cell technology units. CMR believes that during 2016 and 2017, 31% percent of European mercury cell capacity will be shut down, representing 8% of total European capacity. This will push operating rates up and likely will necessitate caustic imports.
AMERICAS
ExxonMobil to put US$20 billion investment on the USGC
ExxonMobil plans US$20+billioninvestmentto the United States Gulf Coast (USGC) in the coming five years. The mega investment comprises capacity expansion at 11 proposed and existing sites, involving refining, petrochemical, lubricant and liquefied natural gas (LNG)assets.
Comments: Exxon’s investment plan responds to the rising supply of natural gas. There has been a boom in production created by improved hydraulic fracturing techniques in shale formations like the Permian Basin of Texas and New Mexico. Exxon recently purchased rights to an estimated250,000 more acres, doubling its presence in the Permian Basin at a cost of up to US$6.6 billion. The company has plans for 10 expansion projects at refineries, petrochemical and liquefied natural gas assets along the US Gulf Coast (including assets in Beaumont and Baytown, Texas and the Baton Rouge, Louisiana location). Exxon is also interested in building a new chemical complex at a location yet to be determined along the US Gulf Coast. The estimated USGC spend for 2017through 2022 atUS$20 billion would be roughly equal to Exxon’s total global capital spending in the 2016. This announcement is very encouraging as it will impact job opportunities, which has suffered many job cuts in the last 2 years due to low oil prices.
OxyChem, MexiChem launch JV cracker in Texas
Ingleside Ethylene LLC, a 50/50 JV between Occidental Chemical (OxyChem) and MexiChem, has announced start-up of its 550KTAcracker in Ingleside, Texas.
Comments: Ingleside Ethylene LLC will produce ethylene from shale gas-based ethane feedstock in Ingleside, Texas. Almost all the ethylene produced at this site is set to be used in Occidental Chemical’s VCM manufacture, which will feed Mexichem for producing PVC and PVC piping in Mexico. The two companies have 20-year supply agreement in place. This will allow both companies to capitalize on feedstock advantage available from shale gas in North America, particularly in the commodity PVC market. The vertical integration toward ethylene production and secured supply for associated VCM will allow MexiChem to improve production cost structure and stay competitive, especially after Westlake’s acquisition of Axiall.
Dow Chemical commissioning Freeport cracker
Dow Chemical has mechanically completed its 1,500KTAgas-fed cracker unit in Freeport, Texas and currently proceeding with the commissioning phase. The cracker is scheduled to come on-stream in mid-2017.
Comments: The US shale gas boom changed the competitive landscape for petrochemical producers in the North America. A dozen ethane-fed cracker projects has been announced in the United States with all targets to be operational by 2021. The first wave of North America ethane cracker project is in varying stages of completion, which include assets by Dow, Formosa, Indorama, ExxonMobil, CP Chem and Ingleside Ethylene LLC. Ingleside Ethylene LLC (JV between Mexichem/Occidental)just completed their cracker in Texas. This wave of ethane gas-fed cracker projects will benefit the Us ethylene derivative producers by providing cost-advantaged feedstock. Dow Chemical, which may soon become Dow-DuPont, expects to utilize the new ethylene output for its existing units that are collocated on the same sites and at others newly associated downstream facilities in Texas and Louisiana.
Taiwan’s Formosa Plastic to expand in the United States
Taiwan-based Formosa Plastic plans to expand on the US Gulf Coast with a total investment of US$14.4 billion, of which US$5 billion in Texas and US$9.4 billion in Louisiana. The expansion in Texas is currently underway with expected start-up in2018, while the Louisiana project waits for construction authorization from the State of Louisiana and is scheduled to gradually proceed to completion between 2022 and 2024.
Comments: Due to abundant and cheap shale gas, petrochemical players in North America enjoy cost advantages over competitors who still rely on naphtha-based feedstock. Many Asian producers have strategically invested in United States for growth opportunities, including Formosa, PTTGC, Lotte and Indorama. Formosa’s Texas project include a 1,590KTAethane cracker, HDPE/LLDPE production facility and MEG plant to be ran by its subsidiary Nan-Ya. While the Louisiana project includes a 1,200KTAethane cracker and associated downstream facilities. Leveraging cheap gas resources will help Formosa improve production cost structures, further strengthen C2 and C3 value-chain and potentially export to Asia market where C2 and C3 derivatives are mainly derived from naphtha.
PTTGC delays Ohio cracker
PTTGC America announced a postponed final investment decision (FID) on its proposed cracker in Ohio until the end of 2017.
Comments: The growth strategies that PTTGC has deployed in recent years are meant to enhance core upstream business, integration into global downstream production, and to develop green and environmental-friendly products. The Ohio petrochemical project is part of PTTGC’s strategy to develop downstream production tied to global markets. PTTGC is investing USUS$100 million to conduct front-end engineering design for the ethylene complex by Fluor Corporation and Bechtel Enterprises Holding Inc. The delay allows PTTGC to further discuss and gain understanding from each contractor, putting PTTGC in a stronger and more confident position to make a final investment decision. PTTGC’s Ohio project is a joint development with Japan-based Marubeni, and still seeking a third partner to help finance of this project.
EUROPE
Lukoil sells its idle ethylene complex in Ukraine
Russia’s Lukoil has sold its subsidiary Karpatneftekhim in Kalush, Ukraine without detailed information disclosed. Karpatneftekhim has production capacity of ethylene, polyethylene (PE)and polyvinyl chloride (PVC) but has been in idle since 2012 due to poor economic climate.
Comments: The Karpatneftekhim petrochemicals plant has been largely idle since 2012 due to unfavorable feedstock costs. The plant is the only producer of PVC and PE in Ukraine. Lukoil was hesitant to invest additional funds to modernize the plant given an uncertain tax environment and tensions between Russia and Ukraine. The Ukrainian government is working with the Ukrainian investors of Karpatneftekhim to provide the right conditions for the restart in the first half of 2017. The excise duty on the import of LPG (feedstock for the plant) has been reduced starting Jan 2017, while pending April 2017implementation of a ban of JSC Kaustik and Rus Vinyl PVC imports, the two leading Russian producers and potential competitors.
MIDDLE EAST & AFRICA
Borouge evaluates new PP facility and steam cracker in Middle East
Borouge considers building a new polypropylene (PP) plant and a mixed-feed stream cracker at its existing site in UAE. The expansion project currently undergoing feasibility studies that is focused on correct feedstock balance for mixed-feed cracker and possible downstream units for heavier co-products.
Comments: Borouge is a 64/36 joint venture between Abu Dhabi National Oil Co. (ADNOC) and Austria-based Borealis. Borouge currently has total polyolefin capacity of about 4,500KTA, which of the majority is exported to China and Southeast Asia markets. Healthy demand growth for polyolefins coupled with lower feedstock costs has been partially translated to Borealis’ earning performance. Borealis reported a record net profit of US$1.17 billion for 2016with contribution from the polyolefins segment. The proposed steam cracker and polypropylene facility, so-called Borouge 4 and PP5 respectively, are Borouge’s strategic investments responses to increasing competition from other Persian Gulf nations and Iran. United Arab Emirates expects to continue to extract more crude oil value and ride the strong growth momentum in downstream petrochemical markets.
ASIA PACIFIC
India Oil to build a mega refinery project in Ratnagiri, Maharashtra
India Oil Corp. has announced its plan for a 60,000KTArefinery project to be built in two locations in Ratnagiri. The main complex will be set up in a small village Babulwadi, while storage and port facilities will be located approximately 15 km away from Babulwadi in coastal area. The mega project will be built in two phases. The first phase will include 40,000KTArefinery, aromatic complex, naphtha cracking facility and a downstream polymer complex, then the second phase will be a20,000KTArefining capacity expansion.
Comments: Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL) is set to take part in building the largest single site refinery in the world. IOC will maintain the majority stake at 50% and the remaining stake is split equally between BPCL and HPCL. The selected location has a small population, and the project will boost the local and state economy. The crude oil for the refinery is set to be sourced from West Asia. The 3 companies involved in the project are open to other investment from other entities.
China’s Dongguan Grand Resource to build propylene/PP complex in Guandong
Private-owned Dongguan Grand Resources has selected CB&I’s Catofin technology for propane dehydrogenation (PDH) unit and W.R. Grace’s UNIPOL process for polypropylene(PP) facility with scheduled start-up both in 2019.
Comments: China has been concentrating efforts to increasing petrochemicals self-sufficiency. Since 2013, China has increased propylene capacity by more than 4,500KTAwith the start-up of eight PDH units. The demand for propylene in China is expected to grow at 4% annually. More PDH units are underway and are expected to bring an additional7,600KTAof propylene to the market by 2020. Imported polypropylene still accounts for around 40% of overall consumption in China even with several PP projects coming on-line in the past few years. The integrated Dongguan Grand Resource PP production complex will help fill the domestic supply gap and capitalize on the market opportunity.
SCG to raise additional 25% stake in Vietnam project
Thailand’s Siam Cement Group (SCG) has acquired 25% stake in Long Son Petrochemical (LSP) project for US$36.1 million via its Vietnam subsidiary Vina SCG Chemicals(VSCG) allowing Qatar Petroleum International (QPI)to exit. This investment will make SCG become the largest shareholder in LSP complex, while Vietnam state-controlled Petro Vietnam will hold the remaining.
Comments: Vietnam has become a popular destination for petrochemical projects targeting the fast-growing Southeastern Asia market because of its strategic location on the Indochina Peninsula and several FTAs (Free Trade Agreements) with ASEAN and other Asia-Pacific Nations. There are five planned petrochemical projects currently under construction or in the planning phase in Vietnam. SCG’s investment in the Long Son complex led are scheduled start-up announcement of2021. Vietnam imported 2,000 KT of both PE and PP per Vietnam Plastics Association. The country currently has only one polypropylene (PP) producer –Vietnam Oil & Gas (Petro Vietnam) and no polyethylene (PE) producer. The LSP project is positioned as Vietnam’s first fully-integrated petrochemical complex (including a 1,000KTAmixed-fed cracker, a 450KTAPP plant, a 400KTALLDPE plant and a 400KTAHDPE plant)is aimed at impacting Vietnam’s dependence on imported polyolefins. SCG’s move to acquire additional 25% share in the LSP project results from in the withdrawal of Qatar Petroleum International.
Jiangsu Sailboat launches MTO unit
China’s Jiangsu Sailboat has begun commercial operation at its 833KTAmethanol-to-olefin facility in Lianyunguan after several delays.
Comments: The methanol-to-olefins (MTO) plant is currently the largest MTO unit by capacity in the world. Ethylene, propylene and C4 stream production outputs are used for captive consumption at associated downstream facilities. The downstream facilities derivatize into acrylonitrile (ACN), super absorbent polymer, methacrylate, polypropylene (PP) and ethylene vinyl acetate (EVA). Sailboat aims to produce EVA copolymers with high VA(vinyl acetate) content up to 40% to capitalize on growing EVA demand. China’s EVA market is driven by high VA content EVA copolymers (VA content > 17%)growth, particularly by solar encapsulation film and hot melt adhesive application. However, the few domestic suppliers of high EVA are focused on foam applications, leaving these two fast-growing segments heavily dependent on imports. Solar encapsulant and hot melt adhesive have consequently become target applications for new entrants, such as Jiangsu Sailboat, Shandong Haoda and Fude Energy.
Saudi Aramco participates in Petronas’ RAPID project
Saudi Aramco and Malaysia’s Petronas have officially signed a Share Purchase Agreement for Saudi Aramco’s participation in Refinery & Petrochemical Integrated Development (RAPID) project in Johor, Malaysia. Saudi Aramco will invest US$7.1 billion for 50% share in the refinery and cracker assets under the RAPID project while providing up to 70% of the crude oil requirement to the refinery.
Comments: Saudi Aramco was previously reported to withdraw from potential cooperation with Petronas on RAPID project. The confirmation on participation in RAPID marks a dramatic reversal with no reason disclosed yet. Due to oil price slump, Petronas had previously announced US$704 million spending cut by 2020. Saudi Aramco’s participation could render Petronas partially relief from its capital expenditure burden and provide more cash buffer to pay dividends to Malaysia Government. As for the counterpart, Saudi Aramco aims to utilize RAPID project as a platform for future investment opportunities in fast-growing southeast Asia.
Sinopec to invest US$29 billion by 2020
China’s Sinopec plans to increase mega refinery and cracker clusters by 2020 with a total investment of US$29 billion. Under the investment plan, these mega production clusters will be established in Maozhan, Zhenhai, Shanghai and Nanjing and will increase Sinopec’s refining capacity by 130,000KTAand ethylene capacity by 9,000KTA.
Comments: Historically, China refinery sector is an oligopoly market occupied by state-ran giants –Sinopec, PetroChina and CNOOC. However, China government has gradually opened the refining sector since 2015, that has allowed private refineries that meet certain requirements to import crude oil. State-owned giants are experiencing fierce competition from non-state owned refineries. Oversupply has become an issue in China refining sector and is set to be addressed by removing outdated capacity under 13th Five Years Plan. Sinopec’s move to upgrade and establish world-scale clusters are in part to respond increasing competition from private players, allowing development of cost-effective and differentiated products. More importantly, the investment aligns with the national goal to tackle oversupply issue.
Lotte Chemical Titan eyes 2018 construction of naphtha cracker
Lotte Chemical Titan plans to finalize front-end engineering design this year and start construction of proposed naphtha cracker. The facility is projected to produce 1,000KTAof ethylene and 600KTAof propylene.
Comments: Lotte Chemical Titan is a Lotte Chemical’s strategic subsidiary with production mainly located in Malaysia to serve uprising southeast Asian market. Titan also entered Indonesianpetrochemical market through the acquisition of PT Titan Petro Kimia Nusantara in 2010. The company currently produces 450KTAof PE (LLDPE and HDPE) in Indonesia using raw material mostly imported from Malaysia. The polymer price plunge and uncertain raw material supply led Lotte Chemical Titan to build its own ethylene cracker in Indonesia. This will allow Lotte Chemical to improve production cost structure and remain competitive within the domestic market. Their competitor Chandra Asri produces ethylene for its downstream products.