ADI Chemical Market Resources Newsletter
September 15, 2015

Chemical Industry Summary

 

Reflecting a lower cost basis, global commodity chemical prices continue to wilt as the global chemical industry adjusts to lower crude oil prices. Spot ethylene in Asia has recently traded near US$800 per MT, down from US$1,400 in July. Margins have eased for producers in all regions. The Asian ethylene/naphtha spread has shrunk to below US$400 per MT, about half of the value seen in July.

Demand for commodity chemicals is quite diverse, varying by geography and by sector served. However, the price collapse of chemicals is prompting inventory adjustments, and it is hard to gauge just how much economic issues in China and the developing countries are hurting global demand. Despite the collapse in crude oil prices, shale gas-based producers in the US still have a competitive cost advantage, but this continues to shrink from record levels. Chemicals leveraged to global commodities (e.g.caustic and aluminum) are caught in the global downdraft of reduced commodity demand.

 

Macroeconomics and Geopolitics

 

Outside the US, GDP growth has slowed especially for the emerging ‘BRIC’ economies. Chinese construction was already in a severe downturn, and now Chinese auto production and sales have turned negative. In July, auto production of 1.52 million vehicles was down 11.7% from a year ago. The Chinese stock markets suffered significant declines in August despite the government’s effort to prop up prices.

 

Feedstock – Crude Oil

 

In the last month, global crude oil prices moved sideways with Brent trading a bit below $50 per barrel and WTI near $ 45 per barrel. NYMEX oil futures for December 2016 have recently traded at $52.25 per barrel, down from about $64 per barrel in February. The primary reason for the weakness in crude oil prices is the negative expectations for China’s demand, currently the #2 oil consumer in the world. In a recent report, the IEA has forecast that the imbalance in global oil demand will persist until late 2016. While low prices have spurred demand, global supply exceeds demand by nearly 2 million barrels per day. US crude inventories in late April peaked at 1.18 million barrels, approaching maximum storage capacity. Low prices have hardly dented production in the US or OPEC which produced 31.26 million barrels per day, down only 0.5% from July and 1.26 million barrels per day over its official ceiling. Lifting sanctions on Iran could result in an incremental 0.5 million barrels per day on the world market.

 

Feedstock – Natural Gas & NGLs

 

US natural gas prices are trading at about $2.75/MM BTU, the same level as has been seen since February. Likewise, US ethane prices have been steady all year, trading in a range of $0.17 to $0.20 per gallon. Propane prices have followed oil down and are in the mid-30s, about one-quarter of the level seen a year ago. At these prices, propane crackers have a $0.05 to $0.10 per pound advantage over ethane cracking. In the US, over 300,000 barrels per day of ethane are being rejected into gas, mostly in remote areas including the Rocky Mountain States that are too far away to recover Y-grade transportation costs. A large portion of recovered ethane volumes come from the nearby Eagle Ford, Haynesville, and Barnett shale formations. The current oil-to-gas price ratio of 17:1 is supportive for North American producers, but down significantly from the peak of 52:1 seen in mid-2012.

 

US Olefins & Polyolefins

 

US contract ethylene prices in August settled down 3.5 cents/lb to 29.25 cents/lb. This is the first time US contract ethylene prices have been below $0.30 per pound since 2002. Ultimately, US ethylene prices are set by international polyethylene pricing at a level that makes US-produced PE competitive in global markets. The drop in global oil prices has reduced the US oil-to-gas arbitrage that has kept international PE prices high for the last several years. However, even at the reduced ethylene prices, US crackers are maintaining healthy, but not record margins of $0.15-0.17 per pound.

August chemical grade propylene prices fell 3.0cent/lb, to a level of $0.315 per pound. This is the lowest contract price since mid-2009, a period that also saw depressed crude oil pricing. August was the sixth consecutive month of price declines that totaled $0.175 per pound.

For September, US butadiene contract prices were down$0.02to $0.03 per pound to $0.245. There was a split settlement with three producers down $0.02 per pound and the third down $0.03 per pound.

In August, US PE prices declined $0.05 per pound or about 7%. September is also trending down and some industry observers predict a similar softening. According to the ACC, PE operating rates in the second quarter were firm at an average of 93% of capacity, up 1.5% from the first quarter. In August, US PP prices were down 1.5 cents/lb, but margins improved as propylene fell 3.5 cents/labs mentioned above.

 

European Olefins & Polyolefins

 

For September, contract ethylene prices in Europe softened € 90 per MT, to a level of €945per MT. On top of the €70 per MT decrease seen in August, prices are now below the beginning of the year levels. Ethylene margins for European heavy feed crackers have recently expanded due in part to lower feedstock prices associated with crude oil softness. In August HDPE prices fell in the area of €100-150 per MT, mirroring the increases seen in the US and Asia.

European contract polymer grade propylene settled at €820 per MT in September, down €110 per MT from August. Contract butadiene prices for August settled at €770 per MT, flat with July. Spot prices in Europe peaked in July at nearly $1,000 per MT, but are now a bit below contract prices.

 

Asian Olefins & Polyolefins

 

Spot ethylene prices in Asia are currently near US$ 800 per metric ton (MT), falling from over $1,400 per MT seen in July. The naphtha/ethylene spread has eased from peak levels near $800/MT to $400-450/MT. Regional operating rates and spot prices had benefitted from numerous Q2 outages that have now been completed. Asian spot propylene prices have recently fallen to below $800/MTfrom overUS$1,000 per MT in July. Film grade HDPE is currently US$1,310 on a spot basis, down $200 per MT from peak levels early this summer.

 

Global Chlor-alkali

 

The Chlorine Institute reported that effective operating rates for the US chlor-alkali industry hit 90% in July, the highest level since May 2011. This is notable as industry capacity has increased by 7% since this time. The higher operating rates were in anticipation of several planned outages this fall. European chlor-alkali operating rates in July improved slightly to 78.9% of capacity.

Several US producers have announced price increases for caustic of $65 per short ton for the fourth quarter. One unconfirmed report has another producer announcing an $80 per MT increase. While an improving US economy has boosted caustic demand, weak international conditions and exports and the poor aluminum market may prove to be a significant headwind.

The second chlorine price increase proposal this year, a $35 per ton increase announced in May, continues to be implemented. The 2015 chlorine price increases are the first in several years. And follow substantial recent new plant expansions. ECU margins for the industry remain near trough levels at nearly $150 per ton.

The impending purchase of the Dow Chemical chlorine/epoxy assets has obtained regulatory approval and is scheduled to be completed in Q4 of this year. This transaction is a tax-efficient reverse Morris Trust transaction.

 

AMERICA

 

LyondellBasell evaluates a new PE plant in Texas

 

LyondellBasll considers setting up a new polyethylene plant at one of its facilities in Texas. LyondellBasell plans to invest USD 5 billion along the Gulf Coast through 2020 to take advantage of abundant shale gas and low crude prices.No further details about the new PE plant are disclosed yet.

Comments: Low-cost shale gas available in North America will be utilized as raw material for the planned polyethylene plant. LyondellBasell Industries (LBI), like other petrochemical producers in the region, is capitalizing on the vast shale gas resources to produce ethylene. Upon completion, LBI would have added approximately 840 KT of ethylene capacity between 2014 and 2016 in Texas. As North America will be over-supplied with polyethylenes, the majority of the products will be aimed at exports. The low-cost feedstock advantage will allow North America to compete with the Middle East on cost in export markets.

 

Formosa Petrochemical proposes a petrochemical complex in Louisiana

 

Taiwan-based Formosa Petrochemical plans to build a US$9.4 billion petrochemical complex in St. James Parish, Louisiana. If Formosa proceeds with the project, the complex would include ethane crackers and downstream derivatives production units, The proposal would be built in two phases. Crackers in phase one then polyethylene, polypropylene, and other derivatives in phase two. A final investment decision is expected to make in mid-2016. To secure the potential petrochemical complex, the state of Louisiana provides Formosa with a US$12 million performance-based grant as well as other tax exemption incentives.

Comments: The United States is Formosa Plastic Group’s second-largest vertically-integrated petrochemical base outside of Taiwan. Based on cheap feedstock and energy costs caused by the shale gas boom, Formosa Plastic Group has announced the expansion of petrochemical facilities in Point Comfort, Texas. Currently, Formosa Group has one ethane cracker, one propane dehydrogenation (PDH) unit, one polypropylene plant, and two polyethylene facilities in various construction stages. Formosa’s current Louisiana facility is located in Barton Rouge and mainly produces vinyl chloride monomer (VCM) and polyvinylchloride (PVC) with ethylene supplied by Williams Company. Under this two-phase proposed project, Formosa plans to complete the ethylene production unit first by 2022, then followed by the construction of other downstream facilities. If the proposed project realizes, the complex would make its Louisiana PVC production site self-sufficient in raw materials and further strengthen the corporate’s global competitive advantages.

Lubrizol signs a licensing agreement with Daelim for C4 technology

 

US-based lubricant additives maker Lubrizol has inked a licensing agreement with Korea-based Daelim for polyisobutylene technology. The technology will be installed at Lubrizol’s Deer Park, Texas site with three years minimum construction phase.

Comments: Daelim’s polyisobutylene technology can produce a wide range of PIBs ranging from conventional polyisobutylene (CPIB) to highly reactive polyisobutylene (HR-PIB), which is used in fuel and lubricant additives for automotive. Lubrizol is the largest manufacturer of conventional polyisobutylene and with this technology licensing agreement, Lubrizol will be able to better cater to the evolving demands of the fuel additives market. Changes in fuel and lubricant additives standards which are anticipated in the second half of 2017 are expected to drive up demand for HR-PIB. To address the expected growth in demand, TPC Group (a leading producer of PIB) also announced the expansion of its PIB capacity earlier this year. Given the competitive landscape and expected market growth, this technology agreement will help Lubrizol further strengthen its position in the fuel and lubricant additives market.

 

LyondellBasell announces the sale of its Argentina PP business

 

LyondellBasell sells its Argentinian polypropylene (PP) subsidiary Petroken to YPF and Grupo Inversor Petroquimica (GIP) for an estimated US$162 million in cash. Petroken operates a 180 KTA PP plant in Ensenada, Argentina.

Comments: The deal involved three major players in the Argentian polypropylene industry. Petroken and GIP’s subsidiary Petroquimica de Cuyo are the only two polypropylene producers in Argentina. State-own YPF, which used to produce PP but exited the business in 2005, provides them with propylene. YPF also acquires 46% of the stock in Petroquimica de Cuyo from GIP. These investments in the PP business not only bring YPF back into the PP business but also result in a PP market monopoly situation. LyondellBasell’s divestment of Argentinian PP business assets is a corporate strategy to shift focus back to the region where the company has the greatest impact.

 

Elastocon launches new TPE grade

 

ElastoconTPE Technologies Inc. has released a new TPE grade –8078B. The new product offers rubber-like characteristics and surface appearance for injection molding, over-molding, and blow molding applications. Possible applications include industrial and consumer products.

Comments: Elastocon’s new grade is a versatile new grade that can be molded over polypropylene and other materials lending a rubbery texture to the item. This grade is a black TPE designed for applications that need UV stability and can find applications in automotive markets. Elastocon is also currently contemplating an expansion in the Chicago area.

 

EUROPE

 

Russia’s Rosneft to build a mega petrochemical complex

 

Russia state-own Rosneft plans to build a US$37 billion refining and petrochemical complex in Nakhodka, Russia. The mega project is split into three phases with a planned start-up date in 2028. The first two phases of this project involve the installation of 12,000 KTA refining facilities and production units that will produce 1,400 KTA of ethylene, 600 KTA of propyleneand200 KTA of butadiene. In phase III, downstream facilities, such as the PP unit and LLDPE/HDPE unit, will be built in the complex.

Comments: Rosneft is an integrated oil company owned majorly by the Government of Russia. Rosneft, which is headquartered in Moscow, became a leading extraction and refinement company after purchasing assets of former oil giant Yukos. The planned cracker complex in Nakhodka will be the biggest volumetric steam cracker. Due to the size of the complex, Rosneft will develop the proposed complex in phases. Originally the Nakhodka Petrochemical complex was due to receive naphtha from existing Rosneft refineries in Achinsk and Komsomolsk. Transneft will increase the capacity of its Eastern Siberia –Pacific Ocean Pipeline (ESPO) from the current 30 million tons per year to 90 million tons per year in order to supply the Nakhodka Petrochemical project. Rosneft in 2012 selected Ineos Technologies for the production of polyolefins to move further downstream from ethylene and propylene. Ineos Technologies had previously been awarded the licenses for Rosneft’s Angarsk petrochemical complex. Rosneft and Mitsui & Co. Ltd (Mitsui) signed a memorandum of understanding (MOU) to develop jointly the Nakhodka Petrochemical Complex. Through this technological cooperation with the most knowledgeable companies in the world such as Ineos and Mitsui, Rosneft is expecting to deploy its petrochemical branch downstream into the high-added-value polymers.

 

Mitsubishi Chemical Performance Polymers to strengthen distribution network in Germany

 

Mitsubishi Chemical’s TPE subsidiary Mitsubishi Chemical Performance Polymer (MCPP) has signed an agreement with Grässlin Kunststoffe to expand the distribution network of TefablocTMTPE products in Germany.

Comments: In the past few years, MCPP has strategically expanded its business in Europe through acquisitions and the establishment of regional offices. In 2013, MCPP acquired three TPE production sites in France, and Poland and one R&D center in Belgium through the acquisition of CTS from Tessenderlo. MCPP Europe set up regional headquarters in The Netherlands to directly operate European business in 2014. Tefabloc™is SB chemistry-based TPEs aiming at extrusion and injection of automotive applications. Germany is a major automotive manufacturing center in Europe with features of delivering high-value-added vehicles. The cooperation with Grässlin Kunststoffe is expected to help MCPP Europe capitalize on the growing demand for TPEs used in automotive along with the recovery of the European automotive market, especially from Europe’s biggest economy Germany.

 

Sibur releases six new LDPE grades

 

Russia-based petrochemical player Siburhas released six new film grades of low-density polyethylene (LDPE), including 153B, 158B, 153BZ, 158BZ, 153BEFand158BEF. 153B and 158B with excellent resistance to thermal-oxidative aging which is suitable for making agricultural greenhouse films. 153BZ and 158BZ with the addition of additives allow PE film to be manufactured at high speed. 153BEF and 158BEF are designed for film applications where easy separation of film layers is required.

Comments: Russia has a handful of new petrochemical crackers planned that are scheduled to come up by 2020. The Eastern European region has been a net importer of polyethylene in the past and Sibur launching the six new LDPE grades will add to the options that converters have in the market. The new grades launched by Sibur are targeted at film applications. Food packaging film in Eastern European countries has healthy demand and growth. Sibur’s Tomsk complex will be completed in 2016 and will include an mLLDPE plant that will be the first in the region. Advanced resins for films have always been imported into Russia and Sibur aims to capture that market.

 

Slovnaft to complete capacity expansion of LDPE

 

Slovakia-based Slovnaft is to complete the LDPE 4 project and facility upgrading at its Bratislava site by the end of this year. LDPE 4 project is to install a new PE production line using the LyondellBasell LupotechT process to replace all existing LDPE units. The replacement will expand PE capacity from 130 KTA to 220 KTA. Commercial production has been scheduled for early 2016.

Comments: Solovnaft is a subsidiary of Hungary’s national refinery and retailer operator MOL Group, which putsCreze in a leading position in Central and Eastern Europe. The company mainly exports its LDPE to the Czech Republic, Poland, Hungary, and Austria. Eastern Europe is expected to register healthy growth for LDPE in the near future. The expansion that replaces all existing LDPE units allows Slovnaft to offer LDPE with better quality while strategically expanding its market penetration in the region with a focus on LDPE film end-uses.

 

Trinseo to commercialize Nd-BRin 2016

 

Trinseo has announced its plan to convert the existing production line at its Schkopau facility in Germany from nickel butadiene rubber (Ni-BR) into neodymium butadiene rubber (Nd-BR). The conversion is to respond to the growing demand for Nd-BR used in green, extra-high performance tires. Trinseo targets 2016 to begin offering Nd-BR.

Comments: Trinseo, formerly known as Styron (until February 2015), offers a broad line of plastics, latex, and synthetic rubber for a wide variety of industries. Trinseo’s technologies are used in home appliances, automotive, building & construction, carpet & turf, consumer goods, consumer electronics/ITE, electrical & lighting, medical, packaging, paper & board, sheet & profile extrusion, and tires & rubber goods. Trinseo’ssynthetic rubber business began in Schkopau, Germany, with the production of synthetic rubber in 1937. In 2012, Trinseo started up a new SSBR manufacturing facility in Schkopau, Germany. Schkopau is home to four world-scale rubber trains that supply Trinseo’s tire customers around the world. The new announcement of commercializing Nd-BR rubber is good news for the tire industry due to the advantages offered by Nd-BR rubber. Nd-BR improves the wear, fatigue, and groove-cracking resistance of tires as well as increases rebound resilience. The material’s lower heat build-up under dynamic stress also can increase energy efficiency by reducing rolling resistance. Coupled with Trinseo’s existing leading technology in Solution Styrene Butadiene Rubber (SSBR), the Nd-BR offering will allow Trinseo to help customers around the world meet the increasing demand for green tires/ultra-high performance tires.

 

 

ASIA PACIFIC

 

Shandong Chanbroad commissions a propane/butane dehydrogenation facility

 

Shandong Chanbroad has launched its propylene/isobutylene coproduction unit using UOP C3/C4 OleflexTM technology, which is the first one ever in China and the second of this kind in the world. The new facility is located in Binzhou, Shandong, and can produce 116 KTA of propylene and 104 KTA of isobutylene.

Comments: In addition to Shandong Chanbroad, Dongming Petrochemical Group, and Dongying Liyuan both chooses C3/C4 technology from UOP and will have a combined capacity of 265KTA and 220KTA, respectively. The setup of these combined propylene/ isobutylene coproduction units is in response to increased consumption of transportation fuel and propylene, as China’s economy continues to grow. According to US Energy Information Agency (EIA), China counts for more than 15% of world propylene consumption and the demand for propylene is expected to grow at 4% annually. Isobutylene is a main component of making transportation fuel additives-polyisobutylene.

 

W.R. Grace to offer UNIPOL PP Technology to Hyosung

 

W.R. Grace will license UNIPOL PP technology and relative services to Korea-based Hyosung for its new facility in Ulsan, Korea. The new plant with its scheduled start-up in 2017 will produce 200 KTA of polypropylene and be Hyosung’s second production line using UNIPOL technology.

Comments: Hyosung is a South Korean industrial conglomerate across the machinery, IT, construction, textiles, and chemical industry. Hyosung’s chemical sector consists of three main focuses –polypropylene (PP) & dehydrogenated (DH) products, purified terephthalic acid (PTA), and packaging. Due to the growing demand for polypropylene in Asia, Hyosung continues to invest in its PP business. Hyosung has the capacity expansion of an LNG-based DHP unit under construction, while the second UNIPOL PP process will bring PP capacity up to 550 KTA by 2017. These expansion projects are strategic movements allowing Hyosung to obtain cost advantages on LNG-based propylene and strengthen its vertical integration toward polypropylene.

 

Ube Industries starts up a new BR plant in Malaysia

 

Lotte Ube Synthetic Rubber, a JV among Lotte Chemical, Ube IndustriesandMitsubishi, has launched a polybutadiene rubber (BR) plant in Johor, Malaysia. The new BR for the plant has a capacity of 50 KTA with a design for further expansion to 77 KTA as needed.

Comments: Ube Industries is a Japan-headquartered polybutadiene rubber producer. The JV plant is Ube Industries’ fourth BR production site. The other BR facilities are located in China, ThailandandJapan. The combined capacity of these four BR plants is up to 320 KTA. The establishment of the new plant allows Ube to meet the growing demand for BR used in tires in Asia, mainly from Southeast Asia. On the side of JV partner South Korea-based Lotte Chemical, the start-up of a BR plant in Malaysia allows Lotte Chemical entry into the synthetic rubber business to catch up on a new growth engine in Asia-Pacific. In the meantime, Lotte Chemical cooperates with Italy’s Versalis for building a specialty rubber plant with a scheduled start-up by 2016 in Yeosu, South Korea, which will produce 200KTA of solution-polymerized styrene-butadiene rubber (SSBR) and ethylene of propylene diene monomer (EPDM) rubber. By then, Lotte Chemical will be able to manufacture synthetic rubber both at home and abroad with a complete product portfolio offered.

 

SHALE GAS DEVELOPMENT

 

South Africa to explore shale gas opportunity

 

With estimated shale gas reserves of 485 trillion cubic feet, South Africa plans to issue a license for shale gas exploration using hydraulic fracturing. South African government continues to the development of an energy mix for economic growth and social development.

Comments: Africa’s second-largest economy South Africa relies on its abundant coal resources for power generation. However, chronic electricity shortage and aging coal-fired power plants, which need improvement for economic growth and social development, make the country look into gas-fired power plants for solutions. South Africa has been to reduce reliance on the usage of coal. Technologies converting coal into syngas or methane have been developed in South Africa for years in the hope to reach the nation’s goal. Shale gas exploration brings South Africa a chance to duplicate the success of the US shale gas boom.

 

BIOBASED

 

Repsol to develop biodegradable polyolefins

 

JRepsol partners with India-based biotech company Advanced Enzyme Science to jointly develop polyolefins for agricultural applications based on Advanced Enzyme Science’s enzyme technology. The enzyme in plastic plays as a catalyst in process of plastic, allowing microorganisms that occur in the ground to accelerate the breakdown of plastic in a natural process. The partnership will first start with developing new mulch films with no need to be removed after crops are harvested

Comments: Plastic mulch is widely used for crop production worldwide for weed control, soil moisture conservation, and increasing soil temperature and improvement of crop yield. PE has been the industry standard in this application due to low price and weather ability, but PE mulch must be removed at the end of every planting season, which drives up labor and disposal costs, allowing biodegradable films to compete. Most of the biodegradable films currently on the market involve starch blended with other polymers and/or plasticizers, including products from Xinfu Pharmaceutical, Novamont, Paragon, NatureWorks, and BASF. These commercial films have not gained significant traction outside of Western Europe due to higher prices, inferior tensile strength, and unpredictable degradation rates. Repsol has an opportunity to become a premium player in this market if the developed polyolefins can match the mechanical properties of conventional PE films.

 

BioAmber opens succinic acid plant in Canada

 

BioAmberInc. has launched its JV succinic acid plant with Mitsui Co. Ltd. in Sarnia, Canada. The facility can produce 30 KTA of bio-based succinic acid from agricultural resources and is currently the largest one in the world.

Comments: BioAmber has moved quickly to solidify its leadership position in bio-based succinic acid manufacturing by completing the world’s largest plant of its kind, with another even bigger one in the works. Most of the feedstock for the plant will be sourced locally in Ontario. The company has secured early contracts for the new capacity, starting with a take-or-pay three-year contract for PTTMCC, a JV between Mitsubishi and PTT, that has already started up a polybutylene succinate plant this year. BioAmber also has an exclusive supply agreement with Oleon to provide bio-succinic acid for the production of specialty lubricants until the end of 2018.