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Overcapacity expected in ethylene uptil 2013

Overcapacity expected in ethylene uptil 2013 by Plastermar.


Global ethylene capacity as of January 1, 2009 was 126.7 mln tons vs consumption of 115 mln tons in 2008, totaling to an excess capacity of 11.7 mln tons- with supply pegged about 10% higher than the consumption. The highest addition ever in ethylene capacity, in a single year, was seen in 2008. 2008 saw addition of more than 7 mln tons only in the Middle Eastern region to reach the total capacity of 19 mln tons. This huge rise in capacity of 56% has increased the share of the Middle Eastern region along with Africa to 15% of the global capacity. Six world scale ethylene plants were built in Iran, Saudi Arabia and Kuwait in 2008 - National Petrochemical Company of Iran started 3 new crackers, Marun Chemical (Iran) stabilized a 1.1 mln ton ethylene cracker, Tasnee Petrochemical Company (Saudi Arabia) commissioned a 1 mln ton cracker and The Yanbu National Petrochemical Co (Saudi Arabia) started a 1.3 mln ton cracker. North America, with 35.4 mln tons, continued to be the largest ethylene producing region in 2008. Asia Pacific region at 33.4 mln tons is merely 2 mln tons behind North America. Both these regions have a combined share of 54% of the global capacity of ethylene.

Dow is the largest producer of ethylene, followed by Sabic and ExxonMobil.

A maximum of 37 mln tons of capacity is expected to be added in the next 5 years from 2009. However, due to weaker demand amid the global recession in 2008 and 2009, few of the projects are bound to be delayed.

CMAI has predicted that global nameplate ethylene capacity will increase to about 145 mln tons by 2010 while the global demand for ethylene will remain essentially flat at about 115 mln tons thus creating excess capacity by more than 20%. Ethylene scenario in the next 5 years is expected to be uncertain with lower capacity utilization impacting price realization adversely. Excess ethylene capacity could reach 17 mln tons or about 15% of global demand by 2010. This level of surplus capacity is driven by assumptions that global nameplate ethylene capacity will increase from 125 mln tons in 2007, to about 145 mln tons by 2010 and about 148 mln tons by 2013 as per CMAI.

From 2008 through 2012, the Middle East and Asia are forecast to add more than 28 mln tons of new ethylene capacity, while North America and Western Europe are expected to shut more than 7.5 mln tons-most of which is assumed for North America. Global ethylene demand is forecast to remain flat at about 115 mln tons this year. The petchem industry is expected to react to oversupply by continuing to implement production cutbacks.

Up until 2008, global demand for ethylene had been growing at a reasonable average rate of 4-4.5% pa. Much of the growth has been driven by Asia and China in particular while the markets of Western Europe, North America and Japan have become mature. Consumption of ethylene into polyethylene and ethylene oxide has fuelled this growth while the ethylene dichloride/vinyls chain has recorded the slowest growth. However, in the H2-2008, ethylene markets saw a dramatic fall in demand as consumer confidence collapsed due to the economic crisis. The decline was exacerbated by falling feedstock costs and extensive destocking throughout the product chains. In addition, the hurricanes on the US Gulf Coast force unplanned shutdowns and restricted supply in August and September. The unprecedented downturn left the petrochemical industry shell-shocked. CMAI estimates that demand fell by nearly 4 mln tons or 3% in 2008. It is forecasting that total ethylene consumption will return to 115 mln tons by 2010 resulting in demand growth for the 2008-2010 period being essentially zero.The rest of the world remains essentially unchanged as projects in the planning stage are assumed to be on-hold.

World capacity utilization rates will enter an extended trough period of below 90% for the next five years reaching the low 80s by 2010. Historically, when utilization rates are 90% and above, the industry enters a period of good profitability. The low cost position of the Middle East producers will enable them to dominate global trade in ethylene derivatives. It is estimated that ethylene equivalent net exports from Kuwait, Saudi Arabia and Qatar will increase from 8 mln tpa in 2008 to 28 mln tpa in 2013. This increase in Middle East market share will come at the expense of producers in Asia and North America. Some 2.6 mln tons of new ethylene capacity is currently onstream in Saudi Arabia according to Kevin Boyle. Over the next two years, 4.5 mln tons and 4 mln tons of additional capacity will start up in the Middle East - construction for which is underway. An additional 2.6 mln tons of new ethylene capacity has started up in China in 2009. 4.7 mln tons will come on in Asia in 2010 and 5.2 mln in 2011. Again, all are assured to start (dates may lapse) as most of these are associated with badly needed refineries. Another US$170 bln is invested in forty more plants by 2015. He poses a few thought provoking questions:While the various national oil companies in the Middle East have money, there has been a preference at times, to partner up with small, local companies taking an interest in new operations. With the severe problems in Dubai and other Middle Eastern financial systems, concerns abound on the amount of money available for risk on petrochemical plants? It could be likely that there will be facilities up for sale over the next two years that could serve the same markets. Even with growth returning to Asia, to the point the market grew before the global recession, all of this ethylene won’t “fit” in Asia. Already Europe has become a prime market for new Middle Eastern capacity. Will it be possible that some assets in Europe that could operate efficiently, could be purchased at a competitive prices? Not if the region is plying its feedstock advantage. Third, just how deep and broad is the region''s feedstock advantage? In more developed systems, like Saudi Arabia, the cheap associated gas is long since used up. Newer facilities run on refinery products like LPG’s and some naphtha. All of these products have a market value that may be higher in their natural state, rather than converted to petrochemicals. With the oversupply of petrochemicals and the continuing, pressing demand for LPG’s and gasoline, ethylene economics might dictate that it is not the best use of resources. The next few years will definitely result in a terraforming of the petrochemical industry. The Middle East and Asia combined will move from about 25% of global ethylene capacity in 2008 to more than 40% by the end of 2011.

The largest outlet, accounting for 60% of ethylene demand globally, is polyethylene -Low density polyethylene (LDPE), linear low density polyethylene (LLDPE) and high density polyethylene (HDPE), as per ICIS. The next largest consumer of ethylene is ethylene oxide (EO) which is primarily used to make ethylene glycol. Most monoethylene glycol (MEG) is used to make polyester fibres for textile applications, polyethylene terephthalate (PET) resins for bottles and polyester film. MEG is also used in antifreeze applications. Other EO derivatives include ethyoxylates (for use in shampoo, kitchen cleaners, etc), glycol ethers (solvents, fuels, etc) and ethanolamines (surfactants, personal care products, etc). Ethylene dichloride (EDC) is made by the chlorination of ethylene and can then be cracked to make vinyl chloride monomer (VCM). Nearly all VCM is used to make polyvinyl chloride which has its main applications in the construction industry. Ethylene can be reacted with benzene to make ethylbenzene which is further processed into styrene. The main outlets for styrene are polymers and synthetic rubbers such as polystyrene (PS), acylonitrile-butadiene-styrene (ABS) and styrene butadiene rubber (SBR). Other ethylene derivatives include alpha olefins which are used in LLDPE production, detergent alcohols and plasticizer alcohols; vinyl acetate monomer (VAM) which is used in adhesives, paints, paper coatings and barrier resins; and industrial ethanol which is used as a solvent or in the manufacture of chemical intermediates such as ethyl acetate and ethyl acrylate. Ethylene is one of the largest-volume petrochemicals. With a diverse range of end-uses, demand is sensitive to both economic and energy cycles. It is often seen as a barometer to the performance of the petrochemical industry as whole.

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