Naphtha

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. China’s petrochemical markets might well respond positively to any new economic stimulus measures announced during the delayed Third Plenum government meeting that takes place on 15-18 July. But the scale of economic reforms required are such that I believe the more likely outcome is China remaining stuck with lower growth than during the 1992-2021 Petrochemicals Supercycle. Sourabh Gupta – Senior Fellow at the Institute for China-America Studies in Washington, DC – wrote in an article for the East Asia Forum that reforms needed include: Progressively lifting Hukou restrictions to make public services more equitable. Building a unified and portable social security net more in line with advanced economies. A shift from indirect to direct taxes. Individual income tax revenues comprised 33% of total revenues in OECD countries compared to 9% in China. The tax base must expand as four out of five Chinese households do not pay personal income tax. He cautioned that reform would not be easy in a country that preferred top-down capital-intensive approaches and was disdainful of high welfare spending. China appears to have doubled-down on its capital-intensive approach since the end of the property bubble through investing in export-focused manufacturing. This raises the issue of geopolitical threats to its GDP growth, such as the US and the EU recently raising tariffs on Chinese electric vehicles and batteries. “If China is to maintain growth rates of 4-5% per year, it can only do so if the rest of the world agrees to reduce its own investment and manufacturing levels to less than half the Chinese level” wrote Michael Pettis, Professor of Finance at Peking University, in an article for the Carnegie Endowment for International Peace. The Economist reported that as reshoring accelerated, governments had adopted over 1,500 policies to promote specific industries in both 2021 and 2022. This compared with almost none in the early 2010s. But this latest Third Plenum could be as significant as the ones cited by Reuters in 1978 and 1993. The 1978 Plenum opened China up to foreign investment. In 1993, the Plenum liberalised trading in the Yuan and launched “socialist market” reforms following Deng Xiaoping’s Southern Tour a year earlier. How will we know the outcomes? If China’s polyethylene (PE) and polypropylene (PP) price spreads return to their Supercycle levels over the six-to-12-months.  If this doesn’t happen, more reforms will be needed as too much supply will continue to chase too little demand. Despite recent rebounds in spreads, China CFR high-density PE (HDPE) spreads over CFR Japan naphtha costs remain 116% lower than during the Supercycle with low-density (LDPE) spreads 46% lower and linear-low density (LLDPE) spreads 80% lower. The story is very similar in China PP spreads over naphtha. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

03-Jul-2024

SINGAPORE (ICIS)–Saudi Arabia's Methanol Chemicals Co (Chemanol) has signed a 20-year deal to supply methanol to the Amiral petrochemical project of Saudi Aramco Total Refining and Petrochemical Co (SATORP). Under the agreement, Chemanol will supply 100,000 tonnes of methanol to SATORP on an annual basis when the complex starts up in three years' time, Chemanol said in a filing on the Saudi Stock Exchange. “The commercial operation [of Amiral complex] and supply [of methanol] are planned to start by the end of 2027,” Chemanol said. It added that "the financial impact of this agreement is currently indeterminable due to the changes in market conditions and product prices at the time of starting to supply the methanol". SATORP, a joint venture between energy giant Saudi Aramco and French TotalEnergies, is expanding operations via building the $11bn Amiral complex in Jubail. The complex is expected to have a mixed-feed cracker and utilities, with a nameplate capacity of 1.65m tonnes/year of ethylene and related industrial gases. Engineering, procurement, and construction (EPC) contracts for the Amiral project were awarded in June 2023 to South Korea’s Hyundai Engineering & Construction. Aramco owns 62.5% of SATORP, while TotalEnergies holds the remaining stake of 37.5%. The companies made a final investment decision on Amiral in December 2022, to enable SATORP’s Jubail refinery to advance Aramco’s liquids-to-chemicals strategy. Amiral will enable SATORP to convert internally produced refinery off-gases and naphtha, as well as ethane and natural gasoline supplied by Aramco, into higher value chemicals. Thumbnail image: At a port in Jeddah, Saudi Arabia, 15 May 2023. (Ute Grabowsky/imageBROKER/Shutterstock)

25-Jun-2024

LONDON (ICIS)–Here are some of the top stories from ICIS Europe for the week ended 21 June. Indian phosphates buyers awaiting subsidies clarity from new government The bullish sentiment in the phosphates world continues, as supply in the Americas remains particularly tight, and demand firming. Europe naphtha, gasoline prices push higher despite weak fundamentals Europe naphtha market spot quotations appear to be torn between firming upstream Brent crude values and waning demand-side fundamentals, with weakness in gasoline particularly denting sentiment. New industrial deal needed to enable energy transition – Europe trade groups The EU needs a powerful industrial strategy to deliver the massive expansion in renewable energy required to power energy-intensive sectors which will provide locally made raw materials, according to a coalition of regional trade groups. Europe BDO heading into Q3 with hopes of stability rather than improvement Although the better-than-expected demand during the first half of 2024 would typically give rise to positivity for the European butanediol (BDO) market, players are tempering their predictions to hopes of stability. Downstream restructuring darkens Europe PX outlook despite shipping disruption uplift Paraxylene (PX) demand in Europe is likely to be relatively firm over the summer as seasonal buying appetite couples with stronger offtakes from downstream markets impacted by delayed imports and higher freight costs.

22-Jun-2024

LONDON (ICIS)–Here are some of the top stories from ICIS Europe for the week ended 14 June. Steady demand keeps Europe butadiene prices firm, improved output but ongoing limitations European butadiene (BD) output may have improved with the resolution of a couple of unplanned outages in May but an ongoing turnaround in the Netherlands and some unplanned downtime in France, amid talk of other issues, is keeping spot availability constrained and spot pricing firm. ESA ’24: No easy fix for European spot sulphuric acid shortfall European sulphuric acid buyers are somewhat resigned as an ongoing shortage of spot acid continues – with little evidence in sight for any improvement in availability. Europe naphtha, Eurobob crack spreads suffer demand slump Northwest European open-specification naphtha (OSN) spot values recovered from losses sustained last week as upstream Brent crude prices rose. IPEX: Global spot index edges down on lower values across all regions The global spot ICIS Petrochemical Index (IPEX) fell by 0.7% in the week ending 7 June on losses across all regions, not least northwest Europe. Europe chems stocks, markets slump in wake of election upheaval Stocks markets in Europe slumped on Monday after EU parliamentary results pointed to a rise in prominence for Eurosceptic parties, with the announcement of a snap election in France and the resignation of the Belgian Prime Minister.

17-Jun-2024

SINGAPORE (ICIS)–Here are the top stories from ICIS News Asia and the Middle East for the week ended 14 June 2024. INSIGHT: Asia petrochemical markets grapple with surging shipping costs By Nurluqman Suratman 14-Jun-24 13:54 SINGAPORE (ICIS)–Spot prices of most petrochemicals in Asia have spiked on the back of surging freight and container costs, as logistics challenges which continue to dampen global commodities trades coincide with a seasonal uptick in demand. INSIGHT: China slams EU over EV tariffs; trade war brewing By Nurluqman Suratman 13-Jun-24 15:01 SINGAPORE (ICIS)–China has slammed EU’s proposal to impose provisional tariffs on imports of Chinese electric vehicles (EVs), denouncing it as a "blatant act of protectionism”, raising concerns that a trade war between Asia’s biggest economy and a new western front is brewing. India Q3 fatty acids demand grows amid freight spikes, logistics woes By Helen Yan 12-Jun-24 13:54 SINGAPORE (ICIS)–India’s import demand for fatty acids has picked up, with buyers seeking to lock in third-quarter shipments amid soaring freight costs and logistics issues that have disrupted global trade flows. Asia naphtha could still be lifted by supply challenges By Li Peng Seng 10-Jun-24 09:55 SINGAPORE (ICIS)–Asia’s naphtha intermonth spread has lost 42% of its value compared to a month ago as weak petrochemical margins weighed, but lingering concerns over arbitrage supplies coming to Asia could help limit the downside. INSIGHT: Asian petrochemical industry at crossroads amid supply glut – APIC By Nurluqman Suratman 10-Jun-24 16:54 SINGAPORE (ICIS)–The Asian petrochemical industry is grappling with a multifaceted transition, marked by a persistent oversupply of petrochemicals, the urgent need to decarbonize, and the growing momentum of the circular economy. China price pressures to remain weak on persistent weak demand By Nurluqman Suratman 13-Jun-24 11:08 SINGAPORE (ICIS)–China's consumer inflation rate is expected to remain weak in the near future on persistently weak domestic demand, raising worries about the risk of deflation as the nation's economic recovery struggles to gain traction.

17-Jun-2024

SAO PAULO (ICIS)–Proposals to sharply increase chemicals import tariffs are only one of the three aspects Brazil’s chemicals producers have proposed to the government to save their "besieged” operations, according to the CEO at trade group Abiquim. Andre Passos added that the industry has also proposed to the government a structural plan to reduce natural gas prices in Brazil as well as a US-style, IRA-type stimulus plan for the chemicals chain, completing a plan to help chemicals producers which remain, he said, operating at historically low rates. Abundant and low-priced chemicals imports have been making their way to Brazil for several months, with domestic producers facing stiff competition and losing market share. China has been the main country of origin, but Passos said also pointed to the US, Russia, or Saudi Arabia. In May, chemicals producers – via Abiquim but also as individual companies – proposed increasing tariffs in more than 100 chemicals, most of them from 12.6% to 20%, in a public consultation held by the Brazil’s government body the Chamber of Foreign Commerce (Camex). A decision is expected in August as the latest. Abiquim represents only chemicals producers, but not distributors; Brazil’s polymers major Braskem, which is 36.1% owned by the state-owned energy major Petrobras, has a commanding voice in the trade group. Other trade groups in the chemicals chain, such as Abiplast, representing plastics transformers, do not support higher tariffs as most of their members import product to meet their demand. Soon after Abiquim met with Brazil’s President Luiz Inacio Lula da Silva in May, as part of their lobbying to prop up chemicals producers’ operations, Abiplast and several other trade groups also demanded a meeting with Lula to lobby for their case of not raising import tariffs. NOT ONLY TARIFFSPassos was keen to stress that higher tariffs were only one part of producers’ proposals to the government and emphasized the measure has been proposed to be in place for one year. In May, a source in Brazil’s chemicals said to ICIS that simply proposing higher tariffs, without addressing other productivity and global competitiveness issues in an industry mostly based in commodity chemicals production, was the result of “business mediocrity”. Passos was not having it. “What is a showing of mediocrity is not to understand this [higher import tariffs] is a proposal to be in place for only one year, in the face of a situation where chemicals producers are operating at rates of 62-64% and where the survival of several chemicals chains is being jeopardized,” he said. “What we have presented to the government is the need to undertake action on three main fronts: in the short term, import tariffs, but in the medium and long term we also need a structural plan to address natural gas prices, which are seven times higher in Brazil than in some other jurisdictions, as well as a stimulus plan covering the whole chemicals production chain.” Brazil’s natural gas prices have hovered around $14/MMBtu during the past months. That compares to a price of around $2.5/MMBtu at times in the US, although this week prices surpassed the $3/MMBtu mark in that country. The chemicals industry can use natural gas-based ethane as one of its building blocks, which has allowed the US’ chemicals industry to thrive after the shale gas boom. In Brazil, most steam crackers run on crude oil-based naphtha. According to Passos, with the adequate regulatory framework and a helping hand from Petrobras, prices could come down considerably in Brazil. To that aim, the energy major and Abiquim signed a memorandum of understanding (MoU) earlier in 2024 to explore potential agreements on natural gas supply to chemicals. Abiquim says the sector is Brazil’s largest consumer of natural gas, coping 25-30% of supply, and therefore government-controlled Petrobras could do more to help. Petrobras has always focused on crude oil production, with most of the natural gas extracted in its operations reinjected back into the system. Passos said Abiquim and Petrobras should be announcing concrete action on natural gas in coming weeks. Moreover, Petrobras said in May it was to restart construction work on its gas processing unit in Itaborai, called Gaslub and also known as Rota 3. The project’s construction, started in the early 2010s, fell victim to the wide-ranging corruption scandal Lava Jato in which Petrobras was a central part. “Currently, Brazil’s crude oil sector is well regulated and is one of the country’s success stories. We need the same for natural gas. When Gaslub is started up, 18 million of cubic meters (cbm)/year will come into the market. We are forecasting there could be gas oversupply within two years, although this of course depends on other variables as well,” said Pasos. “Barring disruption to supply from Bolivia, or a potential severe drought which would lower hydraulic electricity production [having to use natural gas to produce it], we are forecasting that with the adequate regulatory framework and Gaslub functioning, natural gas prices could come down considerably in the medium-term.” Passos was keen to stress how Braskem’s steam cracker in Rio de Janeiro’s Duque de Caxias facilities, which runs on natural gas-based feedstocks, is operating, exceptionally, at an approximately 85% operating rate. This shows, he went on to say, how even with high prices more supply of natural gas is indispensable for chemicals producers to increase their competitiveness. He also said the fiscal burden chemicals procures in Brazil endure stands at 43%, versus 20% in the US, according to Abiquim’s estimations. Work there, he said, could also be done. STIMULUS  Passos said the government must contemplate a plan for the chemicals industry following the example of the US’ Inflation Reduction Act (IRA), which has propelled large investments in green energy projects, propping up the chemicals industry along the way. He conceded the US’ resources are larger than Brazil’s but said that the government has already showed it can design plans to prop up specific economic sectors, and mentioned the example of the Mover program for the automotive industry. Earlier this week, Brazil’s Congress finally approved the plan, proposed in December. In the best Brazilian style, members of parliament (MPs) introduced amendments which graphically are known as “jabuti” (turtle): amendments to a bill which are little related to the spirit of the bill itself. In Brazil’s strong balance of powers, MPs can greatly delay the passing of bills, like Mover. “We have presented to the government the need for an IRA-like, Mover-style plan for the chemicals industry, for all elements in the production chain: basic chemicals as well as chemicals of first, second, and third generation,” said Passos. “Brazil has been able to destine Brazilian reais (R) 19.3 billion [$3.6 billion] for automotive – it can do the same for the important chemicals industry, which creates so many jobs in the country.” Finally, Passos said that before the severe floods affecting Rio Grande do Sul in May – which brought havoc to one of Brazil’s most industrialized states – demand and manufacturing activity was healthier than in 2023, overall, although that improvement had not benefitted any of Abiquim’s members: higher demand for chemicals was being met by imports, he said. On Monday (17 June), the second part of this interview will be published, with Passos' views on Brazil’s response to the floods. Passos is a gaucho himself – as people from Rio Grande do Sul are called – and said the authorities' response to the disaster had been decent, adding he had been humbled by the response of civic society across Brazil. ($1 = R5.36) Front page picture: Braskem's Duque de Caxias facilities in Rio de Janeiro Source: Braskem Interview article by Jonathan Lopez ($1 = R5.36)

14-Jun-2024

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson: China has set itself a target that 40% of all the vehicles on its roads will be electric by 2030. And by that year, the aim is that all new-vehicle sales will be electric vehicles (EVs). The country wants to reach peak carbon emissions before 2030 and carbon neutrality before 2060. “After 2030, it is going to be pretty much impossible to get approval for a heavy industry project because of the emissions targets,” said a petrochemicals industry source. This has led to suggestions that the resulting lower availability of feedstocks from local refineries will slow China’s push towards complete petrochemicals self-sufficiency. I disagree for the following reasons. Despite a cap on local refinery capacity, I’ve been told that local supply of naphtha, etc shouldn’t be a problem until up to a least 2030, because refineries will be increasingly turned in petrochemicals feedstock centers. More naphtha and gasoil crackers are expected to be added to refineries ahead of the 2030 cut-off point. Other heavier fractions from refineries are also forecast to be increasingly used as petrochemicals feedstocks. And even if local feedstock supply does become constrained after 2030, we shouldn’t assume that this will restrict domestic production because of the weaker-tonne economics of importing raw materials. China’s closer geopolitical relationships with the Middle East, along with increased availability of natural-gas liquids in the Middle East, suggest that imports of feedstocks will be available at the right costs. My view is that China’s economic challenges will result in annual average petrochemicals consumption growth of 1-3% per year up until 2030. Beyond 2030 I see growth falling to around 1%. Weaker demand growth will of course make it easier to increase petrochemicals self-sufficiency. Because recycling is mainly a “local for local” business due to the restrictions on moving plastic waste across borders growth of recycling in China will, in my view again, increase the country’s self-sufficiency in polymers. Recycling is exactly the type of higher-value industry China needs to nurture as it attempts to escape a middle-income trap made very deep by its demographic challenges. Security of local supplies of raw materials in an ever-more uncertain geopolitical world will add further momentum to the growth of recycling in China. Local virgin polymer and petrochemical plants will run at high operating rates, supported by maximising supply of feedstocks from local refineries and by competitive imports of feedstocks from China’s geopolitical partners. This will further boost supply security. Don’t be therefore distracted by suggestions that the growth of EVs in China and the country’s emissions targets will be good news for petrochemical exporters to China. China will become a vast continent-sized market that will be just about entirely self-sufficient. As I shall explore in a later post, this will apply to specialty as well as commodity grades of petrochemicals. Overseas producers most focus on markets elsewhere. As the chart below shows using high-density polyethylene (HDPE) as an example, the opportunities in other countries and regions are big. China lifted all petrochemicals boats during the 1992-2021 Supercycle, making even the least-competitive companies successful. This is no longer the case. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

14-Jun-2024

SINGAPORE (ICIS)–Propane in northeast Asia is losing its advantage over naphtha as a cracking feedstock, but the spread is expected to widen again in August-September due to higher naphtha forecast prices. Propane price spread over naphtha below $50/tonne for first time since end-January NE Asia propane firm on year-to-date high China PDH plants run rates Crackers using imported propane require about two months to evaluate feedstock economics In this podcast, ICIS LPG analysts Yan Wang and Shihao Zhou discuss the current market dynamics and outlook.

12-Jun-2024

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. China remains in my view trapped between an economic rock of being unable to significantly boost domestic consumption and the hard place of a more difficult export climate. Until or unless China fixes weak healthcare and pension systems – and maybe also does something to give rural migrants to urban areas better job opportunities and wages by changing the Hukou residency system – the growth in domestic spending is unlikely to be at the levels we saw during the 1992-2021 Petrochemicals Supercycle. And we must factor in the loss of growth momentum resulting from the end of a real-estate bubble. Real estate is worth some 29% of China’s GDP. “If China is to maintain growth rates of 4-5% per year, it can only do so if the rest of the world agrees to reduce its own investment and manufacturing levels to less than half the Chinese level,” wrote Michael Pettis in a December 2023 article for the Carnegie Endowment for International Peace. The rest of the world is hardy likely to accommodate China given the big reshoring push resulting from the Inflation Reduction Act and the EU Green Deal. Investigations into allegedly unfair China trading practices have also increased along with antidumping measures. At the risk of being boring (I’ve probably gone well beyond just a risk), consider the latest version of my PP spreads (it is the same pattern in polyethylene), which is the main chart in today’s post. Despite recent stimulus announcements, average CFR PP price spreads over CFR Japan naphtha costs remain at a record low in 2024 since we began our price assessments in 2003. The table at the bottom of the chart shows PP spreads during the 1992-2021 Petrochemicals Supercycle compared with spreads from January 2022 up until 7 June this year. Until average spreads recover by 149% from where they were up until 7 June, there will have been no return to the great markets we saw during the Supercycle. Meanwhile, too capacity will continue to chase too little demand. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

10-Jun-2024

HOUSTON (ICIS)–Here are the top stories from ICIS News from the week ended 31 May. Automotive major Stellantis plants in Argentina, Brazil still affected by floods aftermath Stellantis’ facilities in Argentina remain shut and its plant in Goiana, northeast Brazil, has also partially stopped, a spokesperson for the global automotive major said to ICIS on Friday. INSIGHT: Busy hurricane season threatens LPG exports to China, Europe crackers The US is expecting its busiest hurricane season ever when it starts on Friday, which could threaten shipments of liquefied petroleum gas (LPG) Europe, a lifeline that has given those plants a relatively good cost position in a region battered by higher-cost naphtha and energy. Midstream consolidation continues as US Energy Transfer makes $3.25 billion deal Energy Transfer plans to acquire WTG Midstream for $3.25 billion, the latest deal in an ongoing consolidation of the industry that provides feedstocks to chemical plants.

03-Jun-2024