ADI Chemical Market Resources Newsletter
August 15, 2015

Chemical Industry Summary

 

US and global commodity chemical companies generally reported favorable financial results in the Q2 earnings season, with several companies reporting record results. Commodity chemical prices proved to be relatively stable despite ongoing feedstock price erosion. Demand for polyolefins in all regions was relatively firm and producers’ inventories at the end of Q2 were brought down to compensate for decreased availability due to planned and unplanned production outages. Going forward, the polyolefins market may prove to be volatile due to feedstock pricing and global currency exchange rate movement.

 

Macroeconomics and Geopolitics

 

 

Feedstock – Crude Oil

 

Global crude oil prices rallied briefly in early August on reduced supply forecasts, but since that time have nose-dived. Brent crude is currently below $50/bbl and WTI has eased to near $43/bbl. The oil-to-gas price ratio is now approaching 15:1, the lowest ratio since 2009, and well below the 2012 peak which was over 50:1. In the global crude oil market, risks dominate to the downside dominate with soft demand and high inventory. Since last October, the US rig count has been halved, but the US market remains oversupplied. New bills in both the US Senate and House of Representatives propose lifting the current ban on US exports. The easing of sanctions on Iran will result in an immediate increase in the supply of 0.5 MM Bpd, and Iran’s high crude inventories could accelerate the negative impact.

 

Feedstock – Natural Gas & NGLs

 

US natural gas prices remain relatively steady and below $3.00/MM BTU. In November of 2014, ethane prices eased to below $0.20/gal and have remained there. In the US, over 300,000 barrels per day of ethane are being rejected into gas, and ethane prices are below floor values for ethane transported significant distances. Propane has dropped to below $0.40/gal as seasonal demand for fuel has weakened, and at this price, the level is providing better-cracking margins than ethane. Producers are moving feedstock slates towards LPG feed to try-09872  optimize economics.

 

US Olefins & Polyolefins

 

US contract ethylene prices in July settled down 1c/lb to 32.75c/lb. This is 34% below the contract price seen last year and at the lowest level since 2009. However, average industry cracker margins are quite healthy by historic standards at about 20c/lb. Heavy-feed cracker margins have recently surged with the fall in oil prices and are approaching 20c/lb. Spot ethylene is currently 34-35c/lb and US operating rates, ex-shutdowns are near full. July chemical grade propylene prices fell 3.5c/lb, about half of the level seen in 2014 and also at the lowest level since 2009. US butadiene in July strengthened 6 and 8c/lb to 29c/lb.

After increasing by 5c/lb in May, PE prices were flat in June and July. The July proposal of up to 5c/lb failed, but margins expanded with falling feedstock pricing. Integrated PE margins of over 30c/lb are quite healthy and have contributed to positive financial results for commodity chemical producers. Average operating rates for all grades of PE in the US were near 92% in Q2, very near effective industry capacity. Polypropylene operating rates are in the low 90% area. In July, PP prices were down 1.5c/lb, but margins improved as propylene fell 3.5c/lb as mentioned above.

 

European Olefins & Polyolefins

 

For August, contract ethylene prices in Europe softened €70 per ton, to a level of € 1,035 per ton, but were still up nearly 25% from March. Ethylene margins for European heavy feed crackers have recently expanded due in part to lower feedstock prices associated with crude oil softness. PE prices increased in May, mirroring the increases seen in the US. European contract polymer grade propylene settled at €930 per ton in August, down €80 per ton from July. Contract butadiene prices for August settled at€770 per ton, flat with July. Spot prices in Europe peaked in July at nearly $1,000 per ton, up 41% from June, but recently have eased slightly.

 

Asian Olefins & Polyolefins

 

Spot ethylene prices in Asia are currently near US$1,200 per ton, falling from over $1,400 per ton seen in July. The naphtha/ethylene spread has eased from peak levels near $800/ton to $600-650/ton, still at a very healthy level. Asian spot propylene prices have recently fallen to nearly $900/ton from overUS$1,000 per ton last month. This price is improved from January spot pricing near $600 per ton. Film grade HDPE is currently US$1,300 on a spot basis and has been steady for the last three months.

 

Global Chlor-alkali

 

The global chlor-alkali industry continues to be weighed down by weak global demand for caustic, whose end uses include the commodities pulp and paper and aluminum. In the US, ECU values in Q2 were flat with Q1 at near $500/ST, as improved chlorine prices offset lower caustic values. In the US,chlor-alkali operating rates averaged only 83% in Q2, traditionally a strong quarter. European operating rates of only 76% were down about 1% from a year ago. For US chlorine, a $40/ton increase in chlorine in Q1 was generally accepted in the market and a second $35/ton increase was proposed for Q2 in May. This increase, if successful, would be implemented in Q3. However, the weakness in caustic has entirely offset the impact of these increases. Margins are currently near $140 per short ton.

 

AMERICA

 

SABIC to invest in US shale gas projects

 

SABIC has signed an agreement with Texas-based midstream service provider Enterprise Products Partners to gain access to shale gas. The company might utilize the feedstock in the U.S. or export it to its derivatives production sites in other countries such as U.K. SABIC is also investigating further investments through a joint venture in Northeastern(Marcellus shale formation) and Southern United States.

Comments: SABIC has made substantial strides in diversifying its investments in terms of both its product offering and locations. The company is considering expanding into natural gas liquids-rich Marcellus/Utica shale basins in the northeast and Eagle Ford/Permian basins in the south to secure a long-term source of cheap feedstock for potential local use and exports. SABIC already has a ten-year agreement with Enterprise Product Partners for ethane to supply its Teesside petrochemical plant in Britain. SABIC has already started modifying its Teesside cracker to use lighter feedstock and has already started construction of a cryogenic tank as part of a gas import terminal at the site.

 

New York City bans single-use Styrofoam

 

New York City has banned single-use polystyrene foam cups and food containers, effective July 1, 2015, with a 6 month grace period. According to the estimation from the City of New York, the ban would prevent around 30 KTAs of Styrofoam waste from being landfilled.

Comments: New York City has become one of several cities in the United States to implement bans on single-use expanded polystyrene foam products due to environmental concerns. The ban forces eateries to seek alternatives to Styrofoam while bringing market opportunities to resin producers of alternative materials. NYC is the largest city in the United States and may have a significant impact on the speed at which this megatrend gains traction in the U.S.Dunkin’Donuts®, for instance, is replacing its Styrofoam cups with new environmentally-friendly foam cups made of high melt strength polypropylene at all stores across the United States. Highmeltstrengthpolypropylene is a specialty grade polypropylene with excellent foamability, heat resistance, and recyclability. Many major PP producers have development programs for HMS PP underway.

 

EUROPE

 

LyondellBasell acquires India-based SJS Plastiblends

 

The Netherland-headquartered LyindellBasell has acquired India-based polypropylene compounder SJS Plastiblends for non-disclosure financial figures. The transaction is expected to be completed in late 2015.

Comments: SJS Plastiblends has a production capacity of approximately 12 KTA of polypropylene compounds (PPC)located in Aurangabad, Maharashtra, India facility. Most of the current PPC product portfolio is used for thermoplastic materials for automotive applications. The strategic acquisition of SJS Plastiblends allows LyondellBasell to further expand its global PPC production footprint and capitalize on India’s fast-growing demand for automotive thermoplastic materials. LyodellBasell has entered the Indian market through imports as well as tolling agreements since 2009.

 

MIDDLE EAST & AFRICA

 

Quantum to start up petrochemical complex in Nigeria

 

Quantum Petrochemical Company Limited has completed the construction of the USD 1.5 billion petrochemical complex in Ibeno, Nigeriaandwill begins commercial production as soon as a purchasing agreement with ExxonMobil is finalized. The facility will produce methanol, polyethylene, and polypropylene.No further details on capacity have been disclosed yet.

Comments: Nigeria holds the first-largest proven reserve of natural gas, the second-largest proven reserve of crude oil in Africa, and Africa’s largest economy. Nevertheless, the lack of investments in downstream infrastructure as well as the low operating rate of Nigerian refining (30%)keeps Nigeria heavily reliant on imported petrochemicals and refining oil products. In recent years, the Nigerian Government and independent companies have supported petrochemical projects to reduce the trading balance deficit in downstream products. Apart from Quantum’s gas-based petrochemical project, there are 2 active projects. First, Dangote Group has USD 9 billion petrochemical complex with a 440K bbl/day refinery and a 600 KTA PP plant under construction. Secondly, Brass Fertilizer Company Limited is constructing gas-feed fertilizer facilities. Gulf of Guinea Oil Exploration Limited is currently conducting a feasibility study of building a methanol plant.

 

Iran seeks investment to boost the petrochemical sector

 

Iran has been seeking an estimated USD75-85 billion investment for boosting its petrochemical sector after the nuclear deal with world powers was accomplished. For the short-term, Iran sets to increase petrochemical output from the current 45,000 KTA to 60,000 KTA with USD 7.5 billion investment, USD 5 billion of which is already committed from Iran’s National Development Fund and the rest of which relies on foreign investors. For the long term, Iran seeks USD 70 billion of foreign investment to complete half-finished petrochemical projects, which will bring Iran’s total output up to 180,000 KTA once all are finalized. Iran’s state-own National Petroleum Company (NPC) has begun discussions with both Western and Eastern companies, such as BASF, LyondellBasell, Linde Group, and South Korea-based Hyundai, for potential project participation.

Comments: Iran has recently concluded a decade-long negotiation about Tehran’s civilian nuclear program. Iran’s sanctions on all economic and financial matters will be removed through a Security Council resolution. In addition, all bans on Iran’s central banking, shipping, oil industry, and many other industries will be lifted and billions of Iran’s blocked revenue will be unfrozen. Iran’s share of world petrochemical production is 2.4 percent and 25 percent of the Middle East region. Iran is one of the most important suppliers of key petrochemicals in the world market, especially methanol. Iran holds the world’s largest gas reserves, but a chronic lack of investment has meant they are under-utilized. Iran’s petrochemical industry intends to provide the necessary conditions to encourage domestic and foreign investors to participate in petrochemical sector activities, especially in special economic zones. In the past, the investors were not authorized to take possession of the land of the petrochemical complexes. Strategically to attract more investors in Iran, the country will allow investors the acquisition land, level the ground, and grant equipment among others as a stimulus package for investment. These factors will make Iran an attractive option for investment.

 

ASIA PACIFIC

 

Uzbekistan to commission Ustyurt gas chemicals complex in 2016

 

The USD 4.2 billionUstyurt gas chemical complex investment by Uz-Kor Gas Chemical is expected to be complete by the end of this year with a scheduled 2016 start-up. Once the facility is up and running, it can process 4.5 billion m3 of gas into 102 KTA of pyrolysis gasoline, 387 KTA of polyethylene, and 83 KTA of polypropylene.

Comments: Uz-Kor Gas Chemical is a joint venture between Uzbekistan state-owned Uzbekneftegaz and a consortium of South Korean companies, including Lotte, Kogas, and STX Energy. The USD 4.2 billion petrochemical project is part of a national program on modernization and technical and technological renovation of the oil and gas industry. Uzbekistan is the third largest gas-producing country in Commonwealth Independent States (CIS), which attracts capital and technology investment from foreign cities. In addition to the Ustyurtgas chemical complex, Uzbekistan is also partnering with China National Petroleum Corporation (CNPC) to build a gas pipeline to China in four stages, with LUKOIL for gas production projects, and with Sasol for gas to the liquid facility.

 

BASF PETRONAS Chemicals to set up HR-PIB plant in Malaysia

 

BASF PETRONAS Chemicals plans to build a production plant of highly reactive polyisobutene (HR-PIB) at their existing site in Kuantan, Malaysia. The planned facility will have a capacity of 50 KTA and is expected to begin operation in Q4 of 2017.

Comments: Founded in 2007, BASF PETRONAS Chemicals Sdn Bhd is a joint venture between Germany’s BASF and Malaysia’s PETRONAS. The polyisobutylene (PIB) production plant in Kuantan, Malaysia is part of BASF’s Verbund sites in the Asia Pacific region. BASF also manufacturesPIB at its production facilities in Ludwigshafen, Germany, and Antwerp, Belgium, and jointly with Sinopec YPC in Nanjing, China. Highly reactive PIB is mainly used as an additive in lubricants and fuel for sludge prevention and deposit control. The investment allows BASF PETRONAS to diversify its product portfolio into specialty chemicals.

 

Versalis to market Reliance’s SBR in China

 

Versalis’ wholly-own Chinese subsidiary Versalis Pacific Trading has inked a sales agreement with India-based Reliance for the commercialization of styrene butadiene rubber (SBR) produced at Reliance’s newly commissioned plant in India. The new plant is located in Hazira and can produce 140 KTA of emulsion SBR using Versalis’ technology.

Comments: Versalis is Italy’s largest chemical company with an extensive portfolio of petrochemical products and is a leading manufacturer of intermediates, polyethylene, styrene, and elastomers. Versalis has recently repositioned its business strategy with a greater focus on a market-focused product portfolio, strengthening research and licensing and the expansion of its global presence by focusing more on the development &optimization of business. Versalis is trying to capture the fast-growing Automotive industry market in this Asian region by strategically forming joint ventures that provide technological licenses and know-how for the construction of Styrene-Butadiene rubber (SBR) plants. By teaming up with Reliance, Versalis hopes to capitalize on the Indian tire market and fast-growing automotive market. Reliance currently uses Versalis technology at its 140 KT emulsion styrene-butadiene rubber manufacturing plant.

 

India to revive USD 7bn natural gas pipeline and petrochemical project in Iran

 

After Iran signed a nuclear agreement with a 5+1 group of countries (USA, UK, Germany, France, Russia, and China) in exchange for the lifting of sanctions, India has started talking to Iran about the revival of a USD 7 billion gas pipeline project from Iran via Pakistan and developing the Farzad-B block in Iran.

Comments: India’sOil and Natural Gas Corporation (ONGC) spent USD 90 million in gas field exploration initiatives in the Farzad-B block since its discovery in 2008. However, facing pressure from sanctions on Iran and a non-profitable model in which explorers have no right to claim a discovery, India discontinued. Iran and Pakistan continue the pipeline development. Alternatively, India partnered with Turkmenistan for building USD 10 billion gas pipeline via Afghanistan and Pakistan to India to meet the growing need for gas in South Asia. With the lifting of sanctions on Iran coupled with Iran’s new rights to claim a discovery, India hopes to revive the abandoned project for further diversifying natural gas sources. However, China via the CNPC project plans to build a gas pipeline from Iran to Pakistan. The impact of this potential project will make India’sambitious goal to secure gas from Iran more difficult to achieve.

 

ONGC consolidates petrochemical sectors

 

Oil and Natural Gas Corporation (ONGC) has approved the merger of its two petrochemical subsidiaries Mangalore Refinery and Petrochemicals (MRPL)and ONGC Mangalore Petrochemicals (OMPL). The consolidation is expected to give MRPL flexibility to optimize the gross refinery margin.

Comments: Oil and Natural Gas Corporation Limited (ONGC) is India’s largest public sector exploration and production company that produces 72% of India’s crude oil and 48% of India’s natural gas. ONGC Mangalore Petrochemicals (OMPL) is an indirect subsidiary of Oil and Natural Gas Corporation Limited (ONGC). MRPL owns 51% of the equity in OMPL and ONGC holds 49%, while ONGC also holds over 70% of the stake in MRPL. The merger of OMPL with MRPL will consolidate the petrochemical production activity of ONGC as well as systemize the costs of production through backward integration of the company with MRPL’s refining and petrochemical complex. OMPL currently produces aromatics: 900 KTA of paraxylene and 300 KTA of benzene.

 

Asahi Kasei to boost production capacity for hydrogenated styrenic thermoplastic elastomers

 

Japan-headquartered Asahi Kasei Chemical plans to expand annual production capacity for hydrogenated styrenic thermoplastic elastomers, such as Tuftec™and S.O.E.™, by 30% at its Kawasaki Works in Kanagawa, Japan. The expansion is scheduled to start-up in June 2016. Asahi Kasei just increased its capacity of SEBS products at this site by 20% earlier this year in response to continuously growing demand.

Comments: Demand for SEBS in Japan has been relatively flat over the past 12 months, whereas demand in China and Europe is driving Asian SEBS producers to cater to these lucrative markets. Japanese SEBS producers can meet the specifications desired in medical applications where there is a premium price. Replacing PVC in medical tubing applications is driving ESS demand.

 

Hanwha consolidates compounding businesses

 

South Korea-headquartered Hanwha Chemical has approved the merger of Hanwha Next into Hanwha Compounds, thereby improving efficiency in management and creating synergy in the compounding market. The consolidated unit will have a compounding capacity of 100 KTA including PE, PP, PVC, and ABS.

Comments: Hanwha’s merger of its two affiliates is a synergistic move within the organization to increase efficiency in operations. The move will merge Hanwha’s compounding business of which wire and cable is a significant part, with its masterbatch and other compounding unit. Global megatrends indicate the compounding sector is on the rise showing good growth opportunities. The Asian automotive markets are showing fast growth due to a need to develop lighter-weight cars using advanced plastic compounds.

 

SHALE GAS DEVELOPMENT

 

Poland and China to collaborate on shale gas development

 

According to the Polish gas portal report, Poland and China are expected to sign a cooperative agreement for shale gas development within the next few months.

Comments: With 5.3 trillion cubic meters of technically recoverable shale gas, Poland has the largest reserves in Europe. The country hopes to duplicate the success of shale gas in the U.S. with many of the world’s energy giants involved. Poland will thereby reduce heavy reliance on imported natural gas from Russia. However, with poor results of test drilling, uncertain governmental regulations, and pressure from plummeting crude oil prices, interest has waned. ExxonMobil, Marathon Oil, Chevron, ConocoPhillips, Total and ENIhavedecided to withdraw from the Polish shale gas industry, leaving only Polish state-own firm PGNG and refiner PKN Orlen still in the field. Similarly, several global players involved in Chinese shale gas exploration also announced ceasing operations in China. Further cooperation between China and Poland allows both to learn from each other. Poland has an interest in exchanging experience of exploring shale gas on complicated geology, while China expresses interest in Poland’s stringent environmental regulations stemming from being a member of the European Union.

 

COAL-TO-CHEMICAL

 

IHI Corp. to launch coal gasification prototype in Indonesia

 

Tokyo-based IHI Corp. has started up its prototype Twin IHI Gasifier(TIGAR)at the PT Pupuk Indonesia Holding Co. facility in Jakarta, Indonesia. The pyrolysis gasification for low-grade coal lignite pilot plant with the capability of converting 50 tons/day of coal into 1,800 Nm3/h of syngas can be further used for the production of hydrogen, ammonia, or chemicals. Plans are to operate for two years to demonstrate TIGAR technology as an economically feasible and environmental-friendly process to produce syngas using low-grade coal. The company will begin marketing the technology with a commercial scale ranging from 500 to 1,000 tons of lignite.

Comments: Indonesia ranks as 4thlargest coal producing country and is the largest coal exporter, mostly to China and India. Indonesia has abundant low-rank coal lignite sold at discounted prices. In the past few years, Indonesia has imposed bans on exporting low-rank coals, while having regulations in place to increase the country’s coal utilization rate to 30% by 2025. Combining these factors has made the country investigate potential coal conversion technologies. HI Corp’s prototype facility is not the only foreign investment, US-based Celanese Corporation has a USD 2.5 billion coal-to-ethanol plant in Indonesia under construction and Japan-headquartered Mitsui plans to invest in the Indonesian energy sector through coal classification.

 

UOP licenses Advanced MTO process to China’s Better Clean Energy

 

UOP LLC has licensed its Advanced Methanol-to-Olefins (MTO) technology to China-based Better Clean Energy. Better Clean Energy will build the MTO plant in Shangdong province, China to produce 300 KTA of ethylene and propylene with a start-up scheduled for 2016. In addition to licensing the technology, UOP will provide engineering, training, technical service, and specialty equipment for the facility. This is the fifth license of UOP’s Advanced MTO process in China

Comments: UOP’s announcement comes at a time of peak uncertainty for Chinese coal-to-olefins projects. Several projects have been delayed or suspended after the sharp fall in oil prices that eroded their economic advantage over naphtha crackers. Despite these conditions, all projects that have licensed UOP technology are either currently producing olefins or appear to be moving forward. Prior to Better Clean Energy, UOP had already licensed its MTO technology to 4 methanol-to-olefin plants, with Wison Clean Energy and Shandong Shenda Chemical already in successful operation. UOP’s technology allows producers to vary propylene-to-ethylene product ratios between 1.2 and 1.8 for increased flexibility.