By John Richardson
ONE industry observer describes some of the cracker and refinery-petrochemicals projects in Southeast Asia (SEA) as “national projects”. In other words, their justification is not entirely on economics, but also about nation building and reducing import dependency.
And so, as we discussed yesterday, perhaps some of these projects will be shelved when it eventually becomes fully apparent as to which economies in SEA have been swimming naked.
Or, as an industry source told us this week, here is another scenario:
- The projects go ahead only to find it very difficult to compete against new volumes of highly competitive polyolefin exports from the US (as a reminder, see the above chart) and the Middle East, as both regions ramp-up their capacities.
- SEA governments respond by raising import tariffs after claiming unfair commercial competition. A big surge in anti-dumping cases is less likely as the high duties that often result from these cases end up causing too much damage to downstream industries.
The source also worries that even the most competitive naphtha-based cracker projects, and existing complexes, in Asia will struggle to compete against the new volumes from the US and the Middle East.
This tells us one or both of two things:
- Incredibly cheap ethane via shale gas in the US is behind this major change in how the naphtha cracker business in Asia is being viewed.
- Concerns over the outlook of demand are the real cause of the concern. In well-balanced markets, of course, even the highest-cost producers prosper.
We believe the latter factor is the biggest reason why the naphtha cracker business in Asia seems to be under such much threat, as we transition to the New Normal.
It is worth noting that during the economic Supercycle, big waves of new Middle East capacity were fairly easily absorbed, thanks to booming demand in China and elsewhere.