European petrochemicals outlook 2015
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© 2014 Platts, McGraw Hill Financial. All rights reserved. European Petrochemicals Outlook 2015 January, 2015
Transcript of European petrochemicals outlook 2015
© 2014 Platts, McGraw Hill Financial. All rights reserved.
European Petrochemicals Outlook 2015 January, 2015
Page 3 - Benzene - Rise like a phoenix -- will benzene climb out of crude wreckage?
Page 11 – Polyethylene - Rise in EU tariffs to constrain -- but not quash -- PE imports from Gulf
Page 15 – Paraxylene - European paraxylene to look for US demand in 2015 as Asia cuts imports
Page 20 – PVC - Consolidation, acquisition look set to bring changes to European PVC pricing
Page 23 – Naphtha - Naphtha prices a double-edged sword for European industry
Page 29 – Butadiene - New capacity to squeeze European butadiene prices further
Page 32 – SBR - Struggling currency, crude oil collapse to weigh on Europe's SBR market
Page 40 – MTBE - US MTBE turnarounds set to keep European market tight in Q1
Page 44 – Methanol - European methanol outlook to remain volatile
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Contents
The bearish sentiment which rippled across the global benzene market toward the end of 2014 is expected to prevail in the next few months, but the market could see a change of wind later in the year, as Asian length gets partially absorbed and the global crude oil market finds a new equilibrium.
The fortune of the European benzene market has been shaped predominantly by three factors in recent months: the collapse of the crude oil prices, increased exports of benzene out of Asia and missing benzene demand in Europe amid numerous outages.
Benzene prices in Europe have more than halved over the course of last year, as market convulsions triggered by the light cracking in the Atlantic basin gave way to the lethargy stemming from the launch of new capacities in Asia. 3
Rise like a phoenix -- will benzene climb out of crude wreckage?
This triggered a 61% slump in price as benzene fell from $1,532.50/mt CIF ARA in January to a 5.5-year low in December of $589.50/mt CIF ARA, even outpacing the steep fall in crude oil.
Benzene's premium to feedstock naphtha -- a proxy for benzene production margins -- reached $636.75/mt at the peak of the market in January and sank to $111.25/mt at its bottom in December, down 82.5% over this period.
Historically, a $250/mt spread has been considered as breakeven.
As OPEC remains reluctant to cut oil production and thus curb the price decrease, finding a sustainable equilibrium has been left to market forces.
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“a proxy for benzene production margins”
According to analysts, crude oil price could slip further in the first quarter on seasonal refinery maintenance plans and with stiff competition from oil-producing nations for market share supply of oil in international markets is still rising.
Additionally, Russian supplies could see an uptick in coming months, as Russian companies take advantage of the depreciating ruble and the overhaul of the oil products export tax regime.
Russia's export duty on its main Urals crude has dropped to 42% in 2015 from 59% last year. For example, in January it has been set at $170.20/mt, or $23.30/b, down 38.7% from $277.50/mt in December.
However, low prices are already leading to decisions to cut investments into more capital-intensive projects, including shale oil.
The resulting decrease in supplies is likely to start manifesting itself around mid-year.
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“According to analysts…”
European demand for benzene is also likely to be impacted by events downstream.
Up to 30% of the total European styrene capacity was offline in the fourth quarter last year either as a result of unforeseen production issues or on scheduled -- though not always publicly announced -- maintenance works.
These included Shell's Moerdijk 450,000 mt/year plant in the Netherlands, which was offline from the start of October until mid-December and BASF's 550,000 mt/year Ludwigshafen plant and Styrolution's 250,000 mt/year Antwerp plant, both of which returned from maintenance mid-December.
The only facility which remains non-operational is Ellba's 550,000 mt/year plant in Moerdijk, which was destroyed by the explosion in June.
Despite the restarts of these plants, the overall demand for benzene is unlikely to see a significant improvement, as the run rates of these plants will depend on the performance of styrene derivatives, such as polystyrene, styrene-butadiene-rubber and acrylonitrile butadiene styrene.
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Not so pretty poly
European producers of polystyrene, the major styrene derivative, have been struggling in recent years in the face of substitution with other plastics and rising imports, mainly from North Africa in case of general purpose polystyrene and Asia in case of high-impact polystyrene.
The difficult environment has recently led to Styrolution's decision to close its 80,000 mt/year Trelleborg polystyrene plant in Sweden.
In addition, there is a concern that the current investigation into possible dumping by the Egyptian polystyrene producer in Turkey could lead to an increase in Egyptian supplies into Europe, which could further undermine Europe's own production.
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“there is a concern that …”
Competition from other regions remains a concern for European phenol producers too.
As the global phenol capacity rises it is likely to have a double impact on the benzene market -- on the one hand, reducing the competitiveness of European phenol makers, but on the other hand, absorbing some of the benzene length.
European phenol producers had to give away some of their margin this year in order to maintain the same order volumes as in 2014.
Last year contractual prices were set at around Eur250/mt over feedstock benzene prices. This year the fee had to decrease by Eur10-15/mt.
Previously European phenol producers felt most of the pressure from phenol supplies from the US and supplies of downstream bisphenol-A from Asia.
This pressure was somewhat eased last year by turnarounds in other regions, but could intensify as new facilities start up.
For example, both Shanghai Sinopec Mitsui Chemicals and Cepsa Quimica have started their 250,000 mt/yr phenol plants in Shanghai over the fourth quarter last year, and should be currently ramping up production.
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It's the “phenol” countdown
Furthermore, Taiwan's Formosa Chemicals and Fibre Corporation was scheduled to start its new 300,000 mt/year plant in Ningbo, China, by early January.
As China gains self-sufficiency more Asian phenol could hit international markets.
However, on the other hand, these capacity additions alongside new capacities in other benzene derivatives would partly offset the rising benzene production in Asia, and thus limit the knock-on effect on the Atlantic basin market.
Asian benzene exports rose last year by around a quarter.
These start-ups as well as a likely reduction in run rates at the new benzene/paraxylene units are set to slow the growth rate in exports this year.
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“Asian benzene exports rose last year by around a quarter”
Little change is foreseen in the balance of the US benzene market, compared to the developments in the previous several years, despite a potential decrease in investments into shale projects.
It is still expected that the availability of pyrolysis gasoline will be gradually tightening in the region as crackers rely increasingly more often on lighter feedstocks, which have a low yield of aromatics.
Production of benzene at the refineries could see a slight short-term uptick, should lower crude oil prices lead to a more active driving season this year, and should increased gasoline demand dictate higher refinery run rates.
A question mark remains over the origin of the benzene imports which will fill in the widening deficit.
Last year with the start-ups of new benzene units in Asia, the US accelerated its imports from this region at the expense of Europe, which also sends a sizeable volume of benzene to the US Gulf.
According to the most recent data from Eurostat, EU exports of benzene dropped by around a quarter in the first 10 months of the year to 124,697 mt. The main destination for European molecules is normally the US.
As new Asian downstream units absorb increasingly more benzene within the region, the aggressive injection of benzene into the US could ease towards the second half of the year.
In this case the US is likely to look towards Europe once again as a natural supplier of incremental tons.
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Business as usual
The sharp rise in EU customs tariffs which saw imports of polyethylene from Gulf states slashed in 2014 is expected to continue to constrain imports in 2015 -- but a huge build-out of plastics capacity in the Middle East is expected to slow the steep decline.
On January 1, 2014, EU custom tariffs for plastic imports more than doubled to 6.5% from 3%, after the EU revised its Generalized Scheme of Preferences.
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Rise in EU tariffs to constrain -- but not quash -- PE imports from Gulf
The increase was applicable to product from Gulf nations such as Saudi Arabia and had an immediate impact on imports, particularly of linear low density polyethylene, which slumped 31% in the first 10 months of 2014 compared to the same period in 2013, according to Eurostat data.
Over the same period, the Middle East share of the European LLDPE import market fell to 79% from 70%, despite plastics production capacity in Gulf Cooperation Council states increasing 6% to 25.5 million mt.
Over the next few weeks, polyethylene production at the Borouge 3 chemical complex in Abu Dhabi is expected to ramp up after the complex -- which includes a 1.08 million mt PE plant and a 350,000 mt low density PE plant -- was started late last year, according to industry sources.
"European imports of Middle Eastern polymers have reduced a bit because of the tariffs. However, the structural flow of polymers from the Middle East to Europe will continue, due to a low cost base and logistical advantages," according to Platts Petrochemicals Analytics team this week.
The rise in duty has also had a fundamental shift in the product European converters are using, with many European consumers turning to metallocene, which can be produced domestically or imported from South Korea duty-free, instead of LLDPE, according to traders.
According to one source, this dynamic is unlikely to change.
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“"European imports of Middle Eastern polymers have…”
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Which polymer do you follow?
"Less LLDPE has been imported because of the higher duty, whereas metallocene is longer because it's produced in Europe," one trader source said.
While last year prices were supported by the duty, 2015 promises to be a boom year for buyers of plastics following the significant decline in oil prices over the second half of 2014 on global oversupply.
Following OPEC's decision to maintain its current crude oil output ceiling in late November the decline accelerated: front-month ICE Brent futures dipped below $50/b January 7 for the first time since May 2009, from a mid-2014 peak of more than $115/b.
In turn, the price of European naphtha has collapsed, sinking below $400/mt January 5, a low since April 2009.
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"Less LLDPE has been imported because…”
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Get more insight.
The fall of oil prices occurred against the backdrop of a weak European economy.
According to data published in December by financial information firm Markit, European weakness was particularly evident in the core countries -- Germany and France.
German companies reported the smallest increase in business activity since June 2013, while activity in France fell for the eighth successive month.
Buyers of polymers also benefited from the recent increased selling interest from Russian producers, amid a plummeting ruble as well as serious economic concerns fueled by rampant inflation.
A slowdown in the global economy, coupled with a build-out of plastics capacity, promises to hit plastic prices over the next two months as falls in monthly contract values across the board have yet to be factored in.
But the big question concerns the long term impact of the duty hike.
While the Middle Eastern share of exports to Europe may have marginally decreased last year, in the long term the Middle East will likely continue to export considerable volumes, given access to lower feedstock costs, combined with additional product coming on stream.
"They may have lost their advantage to the US, but not to Europe -- and costs in Europe are not getting any cheaper," Platts analytics team said.
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“Buyers of polymers also …”
European paraxylene producers be keenly eyeing demand prospects in the US in 2015 as Asia, the usual importer of European PX, tackles surplus supplies and as end-consumers slash procurements.
Spot markets within Europe are likely to remain somber as downstream demand is expected to be met mostly by contract commitments, market participants including producers, consumers and traders noted.
NWE PX touched a five-year low in December, consistently trading below $800/mt FOB ARA, primarily dragged by plunging crude. However, multi-year low cotton prices played an even stronger role in pressuring PX
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European paraxylene to look for US demand in 2015 as Asia cuts imports
A great proportion of the global PX is used in the polyester industry through downstream products polyethylene terephthalate and dimethyl terephthalate.
An estimated 70% of the 60 million mt of downstream PET produced globally goes into polyester fibers, with the rest going into applications like bottles and films.
All the DMT produced globally lands in the polyester chain.
Cotton and polyester are both used in fabrics to varying degrees.
But demand for polyester from this sector is likely to fall back as the industry turns to cheap available cotton supplies, sources said.
Polyester is blended in different ratios for use in textiles.
The industry standard has been a polyester-cotton blend ratio of 80:20 but this is changing as cloth manufacturers resort to using a greater proportion of cheaper and abundantly available cotton.
Several manufacturers globally are resorting to manufacturing 100% cotton garments.
Branded as the more attractive "natural" option, the currently prevailing cotton glut is expected to enhance the trend: cotton prices in the US ended the year at less than 60 cents/lb, their lowest since end-2009. 20
Cotton to pressure paraxylene chain in 2015
China, the world's largest consumer of cotton, embarked on a drive in 2014 to slash inventory buildups at its ports for products ranging from natural rubber to petrochemicals.
The government said in September it would slash cotton imports in 2015 and this news subsequently pressured the PX chain globally.
China has also heavily subsidized its cotton farmers since 2011 and this has consistently led to higher output although the country's exact cotton output for 2014 could not be confirmed.
According to data from the US Department of Agriculture, while China imported a little over 20 million bales (the standard cotton measuring unit -- this figure being equivalent to about 4.35 million mt) in 2012, production in the US stood at a little higher than 17 million bales.
In 2013, Chinese imports totaled 14 million bales, while production in the US stood at 12.5 million bales.
In 2014, however, in what would come as a sharp change in the trend, production in the US was expected to have sharply exceeded Chinese imports, by more than 10 million bales.
In 2015, Chinese imports are expected to stand at 7 million bales while production in US is expected to touch 17 million bales. This is expected to lead to a formidable build-up of cotton inventory. There is a similar development in India. Cotton exports from India are estimated to stand at 6.5-7 million bales for 2014 about 45% lower than 11.8 million bales registered in 2013. Official figures for cotton exports in India for 2014 are yet to be announced.
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“In 2013, Chinese imports totaled…”
China's purified terephthalic acid demand will grow at just 2% in 2015 down from an average of 5-6% over the past several years, one of the country's largest PTA producers with plants across Asia said. "That will pressure PX," he said.
Fresh PX capacities that came online in the second half of 2014 are putting additional pressure on the product's prices.
The start-up of Saudi Arabia's new 400,000 b/d Yasref refinery at Yanbu in September, with its 700,000 mt/year PX unit, was one a string of such startups.
At the end of August, India's ONGC Mangalore Petrochemicals Ltd. began shipping PX from its new Mangalore aromatics plant, which can produce 900,000 mt/year of PX.
Singapore's Jurong Aromatics Corp. plant, which has a PX capacity of 800,000 mt/year, also met the specification for the product in early September and has been shipping cargoes.
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Lower Asia demand meets increased capacity
In the US, PX consumption is currently placed at 6.8 billion lb/year or about 3.1 million mt/year and a considerable proportion of it is met through imports. Two production lines at BP's Cooper River, South Carolina-based downstream 2.86 billion lb/year (1.3 million mt/year) PTA plant that restarted end-November are expected to be run at high operation rates in 2015.
"We do see spot PX demand rising in the US," said a US-based trader who had sought a cargo in December. "We had offers at high prices on the US Gulf Coast, and there were no offers from Europe."
Total European nameplate PTA production capacity is placed at 4.3 million mt/year. The PX nameplate production capacity is 2.1 million mt/year and considering PTA plants run at an average of 60-70% in the continent, this is more than sufficient to meet downstream demand.
This scenario is not expected to undergo a major change in 2015 as Spain's Cepsa is the only company that will enhance PTA procurement during the year as it marginally raises its San Roque PET capacity from 180,000 mt/year to 230,000 mt/year.
Meanwhile, economic indicators remain dull, if not actively discouraging. The final 2014 release of Markit's closely watched Eurozone manufacturing Purchasing Managers' Index for December stood at 50.6 down from a previous flash reading of 50.8 for the same month.
The official PMI for China, the bellwether of global petrochemicals demand, fell to 50.1 in December from 50.3 a month earlier. And crude oil continued its startling decline: January 7 saw front-month ICE Brent crude dip below $50/barrel, its lowest since May 1, 2009.
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US demand expected to support European paraxylene
The sharp rise in EU customs tariffs which saw imports of polyethylene from Gulf states slashed in 2014 is expected to continue to constrain imports in 2015 -- but a huge build-out of plastics capacity in the Middle East is expected to slow the steep decline.
The merger between these two giants makes the consolidated venture more than twice the size its next biggest competitor.
Nor was that the only major merger over the past year: US-based Westlake's purchase of Vinnolit and Mexichem's acquisition of Germany's Vestolit could see major changes in pricing 2015, sources said.
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Consolidation, acquisition look set to bring changes to European PVC pricing
As one trade source said: "With the reduction of sellers in the market and the introduction of buyers from the Americas, the European sales approach could see a change from low pricing at high volumes to a push-up in prices with more selective sales."
Aside from tightening margins brought by high production costs compared to the US, another reason for the contraction of PVC production in Europe is a new EU law banning mercury cell technology in chlor alkali units beyond December, 2017.
Currently around a quarter of chlor-alkali units responsible for the production of chlorine, a major feedstock to PVC, use mercury production and will therefore have to convert to a more modern method of production such as membrane or close.
BorsodChem, which began a plant overhaul at its site in Kazincbarcika, Hungary, last October, is expected to complete construction of a membrane production unit by December 2017.
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“European sales approach could see a change from low pricing”
With caustic soda, a major co-product of chlorine production, earning a profit margin of about $30/mt versus $200/mt in the US, evaluating whether to upgrade the plant is not easy.
Converting to membrane technology is both costly and takes time.
Producers in Central Europe are expected to see closures of around 500,000 mt/year in production capacity, while western Europe, which is most heavily impacted by the legislation, could see closures three times that size.
Demand for PVC in Europe within 2014 was widely reported as low, but is expected to increase with forecasts of growth heard in the construction industry, a main driver for PVC demand, at 2% for 2015.
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“Producers in Central Europe are expected to see closures.”
Plummeting naphtha prices could prove both a benefit and a liability for the European petrochemical industry in 2015.
As industry analysts told Platts, the sharp decline in naphtha costs swells European steam cracker margins -- but it also makes strategic decisions like importing US ethane in the future more difficult to make, if oil prices remain low, said Peter Fasullo, principal at EnVantage in late December.
And, according to Marcus Morawietz, the easing of competitive pressures will last only for the short term as fundamental weakness in the industry remains in place, the European chemicals lead partner at Strategy& (formerly Booz & Company) said late December.
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Naphtha prices a double-edged sword for European industry
Hydrocarbons prices have more than halved in the past six months, the decline accelerated by OPEC's decision in November to maintain its current crude oil output.
Front-month ICE Brent futures fell below the $50/b mark January 7, a near six-year low, as plentiful oil supplies put pressure on prices.
"No one knows where the new price equilibrium is now," said Yusuke Seta of Newedge on January 5. "There is an excess of 2 million b/d (of crude oil) in the market now that will not be met with demand."
European naphtha, in turn, fell below $400/mt to be assessed at $389.50/mt CIF NWE January 5, its lowest point since March 2009 amid the global financial crisis.
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"No one knows where the new price equilibrium is now"
"The weakening oil price will relieve some competitive pressures on European petrochemicals, with the difference between US and Middle East manufacturing costs narrowing, especially in C2- and C3- [ethylene and propylene] based petrochemicals." Morawietz said. "EU petrochemicals, which is mainly naphtha-based cracking, has experienced increasingpressure over the past years through imports from feedstock-advantaged regions (Middle East and US) and feedstock sources (gas-based chemicals and gas)."
As crude prices recovered from the financial crisis, to trade at around $100/b or more from late 2010, the oil-gas spread favored the use of gas in the petrochemical industry around the globe.
During this time European petchems came under increasing pressure from feedstock-advantaged regions, such as the US and Middle East.
On the back of competitively priced gas production, several European petrochemical companies have invested in ethane-based infrastructure, modifying crackers to run on ethane instead of naphtha and setting up trade flows to move gas across the Atlantic.
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"The weakening oil price will relieve some competitive pressures…”
Ineos, Sabic and Borealis have already committed to bringing US ethane to their European operations. Shell and Versalis said in October they would also import US ethane for their European steam crackers.
"It is very hard to view crude prices staying at these levels for a long time, but the current environment makes the decision to import US ethane in the future much more difficult for European cracker operators -- especially if you were already on the fence about it," EnVantage's Fasullo said. "In this environment you are going to wait and see how oil prices sort out."
Even in the US, Fasullo said, where ethane forms the primary feedstock, since the oil price decline ethane's advantage over naphtha has been reduced.
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"It is very hard to view crude prices..”
Simply, at the beginning of 2014, in terms of cracking margins ethane had an almost tenfold advantage over naphtha; by December that had shrunk to less than twofold.
The profitability pressure on European petrochemicals will not vanish over the coming years, even if the gap continues to narrow, Strategy's Morawietz said.
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European petrochemicals will not vanish
"Some of the European crackers have the problem that they are older, smaller and inefficient," Fasullo said, adding that the construction of world-scale ethane crackers in the US -- crackers with capacity to produce more than 1 million mt/year of ethylene -- will put competitive pressures on the high-cost, inefficient crackers in Europe.
The average cracker capacity in Europe is 550,000 mt/year.
For the European ethylene producers with high-cost crackers, "It is like having an old car which has bad fuel mileage. Now that the prices of fuel have fallen, you might have the tendency to drive that older car longer. But eventually in the long run, you will look to buy a new car or improve the older car's fuel efficiencies," Fasullo said.
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"Some of the European crackers have the problem …”
New capacity due online in 2015 will add further pressure to butadiene prices, in what is already a weak market.
The butadiene contract price was settled at Eur675/mt ($805/mt) for January, down Eur100/mt from December -- a five-and-a-half-year low for the CP and a far cry from its historic high of Eur2,100/mt FD NWE in October 2011.
This year, Germany's Evonik's butadiene capacity in Antwerp, Belgium is set to increase by 100,000 mt/year in the second quarter.
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New capacity to squeeze European butadiene prices further
Austria's OMV will set up a new 60,000 mt/year butadiene extraction plant at its Burghausen, Germany, facility in Q1-Q2.
And Hungarian Tisza Chemical Group is aiming to start production at its new 130,000 mt/year butadiene extraction unit in Tiszaujvaros in Q2.
The collapse in demand for butadiene has been driven by abundant natural rubber supplies for which it is a substitute, slow global economic growth and a fall in Asia's import appetite as it led its own capacity expansion drive in butadiene with prices at historic highs in 2011.
Plummeting prices for feedstock naphtha -- which this week plunged below the $400/mt mark -- mean strategic decisions like whether to import US ethane for European crackers will be more difficult, as the price advantage narrows, and calling into question the expectation that European butadiene supply would shrink as a direct result.
Cracking the rival feedstock does not yield butadiene.
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importing US ethane for European crackers will be more difficult
Ineos, Sabic and Borealis have already committed to bringing US ethane to their European operations.
Shell and Versalis said in October they would also import US ethane for their European steam crackers.
Last year, Versalis said it suspended plans to build a 70,000 mt/year butadiene production unit at its Dunkirk plant in France, while Ineos shut its existing butadiene facility at its Grangemouth plant in Scotland.
As analysts told Platts recently, the current oil price environment, with crude trading at near six-year lows, makes the decision to import US ethane in the future much more difficult for European cracker operators.
"In this environment you are going to wait and see how oil prices [pan] out," said EnVantage analyst Peter Fasullo said.
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"In this environment you are going to wait and see…”
A two-pronged spear of sharp currency depreciation and a collapse in crude oil prices is set to pressure European styrene-butadiene-rubber suppliers to slash prices in 2015 to unprecedented levels.
The key 1502 spec emulsion market began the year to be assessed by Platts at Eur1,425/mt FD NWE, or $1,895mt FOB Rotterdam.
By the end of 2014 those markers had slumped to Eur1,102/mt and $1,313/mt respectively.
Struggling currency, crude oil collapse to weigh on Europe's SBR market
In the final trading week of the year, ESBR 1502 prices plunged by Eur168/mt alone, the result of the crumbling Russian currency and the expectation of a three-digit fall in key butadiene feedstock costs in January.
Further up the chain, the front-month ICE Brent futures contract hit $55.81/b on December 31 -- less than half its midsummer peak and the lowest level in five and a half years, triggering falls down the supply chain and pressuring prices.
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“ESBR 1502 prices plunged..”
But as Europe typically is an importer of rubber from Russia, the main impact on SBR prices will continue to be the collapse of the ruble.
The ruble lost more than half its value against the dollar since the start of 2014. Russian SBR producers, who buy their raw materials in rubles, see this as a win-win situation.
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“SBR prices will continue to…”
"I think that the crude price could have big repercussions," a tire-maker said. "There is an expectation that [SBR] prices will fall in January... and we don't expect that demand will increase [this year]."
And a producer said: "The market is quite uncertain. There will be some pressure. The depreciation of the ruble is offering cheaper [material] but it's not predictable what the other influences over availability will be."
This price pressure from Russia was confirmed by a trader in December, who said he was able to get hold of cheaper Russian-produced SBR, and thus undercut European producers.
"With the [currency falling] there is more Russian business. [Prices] at Eur1,100-1,200/mt FD NWE is the direction for December. We bought at these levels," a trader confirmed last month.
One Russian producer admitted selling out his December exports into Europe at Eur1,200/mt and was currently planning to sell January deliveries into Europe at Eur1,050-1,100/mt FD NWE.
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"With the [currency falling] there is..”
In addition to currency and feedstock costs, the combination of global SBR oversupply and weak demand seen in 2014 is expected to weigh on pricing in 2015, according to sources.
India's Reliance Industries Ltd. began production at its new 150,000 mt/year SBR plant at Hazira in September and European market sources worried about their global export-potential with China now not consuming at pre-2014 levels.
Meanwhile more capacity is due on stream in Europe.
In Poland, Synthos' 90,000 mt/year SSBR Krakow plant is due to start production in 2016, while Hungary's MOL plans to start construction of its 60,000 mt/year synthetic rubber plant in Tiszaujvaros for completion by the end of 2017.
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New capacity weighs; euro crunch changes global trade flows
The MOL project is a joint venture with Japan Synthetic Rubber. And Versalis said it planned to construct a 80,000 mt/year greenfield SBR plant in Ravenna due for completion by the end of 2016.
Tire-makers argue that new global capacities in the new few years are adding to the pressure on price. But the euro's decline over the past year has also led to the redirection of global trading flows, meaning less import consumption in Asia.
The value of the euro against the dollar fell to lows of $1.22 in December, down from the May high of $1.39 but with Asian capacity having increased in the past couple of years, and rubber stocks under control, they were not seeking more imports.
"The US is the only market where there is real demand and where material is being exported to. All the European and US product was going to China a few years ago but now we are shipping to the US and so is Asia. The US is the only [region] that is healthy," one tire-maker said
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"The US is the only market where there is….”
The fall in global demand and changing trade flows were expected to bring added pressure to synthetic rubber producers going into 2015, just as they did in 2014.
Tire-makers reported disappointing replacement tire sales last year and were buying less rubber, and as such 2015 term contracts were likely to contain lower volume commitments.
As a result tire-makers have been able to renegotiate these clauses on the basis that the cheaper spot market was a more attractive alternative, sources said.
"[The] original [equipment] sector has done halfway OK, but the replacement sector...continues to be relatively weak," one trader said in the autumn.
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Loss-making SBR producers in the spotlight
The replacement tire equipment sector represents around 75% of the global market and is the most important tire element, while original equipment, or tires fitted to new cars, represents the remaining 25% of demand.
The slump in demand has affected synthetic rubber company results, and profit warnings have been issued.
Companies were cutting staff while the likes of Lanxess were restructuring to tackle the lower sales volumes and revenues.
The company said in August that it would cut the number of its business units to 10 from 14 by January 2015 and would decide on potential plant closures during the year.
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“The slump in demand has affected…”
Upcoming turnarounds at MTBE facilities in the US Gulf Coast and the Persian Gulf might contribute to a spot market squeeze in Europe in the first quarter of 2015.
TPC in the US has already been in turnaround since last year, Enterprise is reportedly on its way into a turnaround, US sources said January 7, Huntsman MTBE is scheduled to shut down for maintenance in the first quarter and LyondellBasell in Texas is running at 75% capacity, prompting expectations among European traders that the arbitrage from the Antwerp-Rotterdam-Amsterdam hub to the US Gulf might open up in the first quarter.
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US MTBE turnarounds set to keep European market tight in Q1
Sabic's 4.2 million mt MTBE production facility in Saudi Arabia is also due for maintenance in February, adding to global tightness, sources said.
As for production in Europe, German chemicals company Evonik is due to increase its capacity for C4-based products in 2015.
According to a company spokesman, Evonik aims to have increased capacity of 165,000 mt come on stream in the second quarter, bringing its total to 665,000 mt/year, and increasing overall European MTBE capacity by around 3% as a result.
Apart from Evonik, no new MTBE capacity will come on stream in Europe in 2015.
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No new MTBE capacity will come on stream in Europe in 2015
These developments would follow an extremely tight fourth quarter in the European MTBE spot market.
In November, the MTBE factor to Eurobob gasoline reached an all-time high of 1.509, as the market scrambled for high octane blending components.
Refinery turnarounds in Europe and large scale aromatics export from Northwest Europe to China compounded to create a situation of severe octane shortage.
As the octane shortage eased in Europe, as exports to China dwindled and EU refineries came back on stream, exports to Latin American and Caribbean destinations kept the MTBE factor to gasoline at elevated levels well into December.
As MTBE was observed as an expensive blending component for European use in the fourth quarter, it remains to be seen whether potential demand from the Americas in the first quarter will offset the MTBE factor to gasoline edging towards its historical first quarter average value around or just below 1.2.
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Falling from heights
After import tariffs for ethers were increased from 2.5% to 5.5% one year ago imports for European use have decreased, industry sources said.
The Persian Gulf is the largest producer of MTBE worldwide, and Gulf states are also increasingly using MTBE locally, further reducing MTBE exports from the area.
MTBE produced in the Middle East has not made up a large part of European consumption.
However, cargoes from that area have often served as a buffer when European production has not been able to meet sudden surges in demand, and therefore reduced volatility.
As crude prices have fallen more than 50% since the summer, availability of imported material in Europe might increase, as a lower outright MTBE prices yield lower tariffs in absolute terms.
And lower crude values have also been reflected in gasoline prices which have fallen more than 50%, potentially increasing aggregate gasoline demand.
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Persian Gulf imports
The European methanol spot market is expected to remain volatile in 2015 as the region remains dependent on imports to satisfy domestic demand.
With no new methanol production capacity expected in 2015 and the addition of new MTBE capacity in Germany and Belgium, Europe's exposure to global supply fluctuations and arbitrage opportunities from other regions is likely to grow.
According to Eurostat data, the EU imported 5,470,861 mt for the first 10 months of 2014, up 28.2% from 3,926,348 mt in the same period of 2013.
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European methanol outlook to remain volatile
With the total European methanol demand exceeding 9 million mt/year the region is now dependent on imports for more than two-thirds of its consumption.
Supplies are likely to be readily available from Asia, where plummeting energy prices have dented the economics of the China's methanol-to-olefins projects.
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Where plummeting energy prices have….
"The starting point is that the contract price was too high and with the collapse in Asian spot prices it is making material from there very attractive, especially if Chinese demand fails to absorb material and further price falls are coming," a trader source said.
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"The starting point is that the contract price was too high…”
Demand from the formaldehyde, acetic acid and MTBE markets is likely to see only marginal changes this year, with only one new methanol consuming facility reportedly coming online this year.
Evonik will complete expansion of its Marl, Germany, and Antwerp, Belgium, sites in the second quarter, adding 165,000 mt/year, or 3%, of new MTBE capacity.
Current MTBE capacity in Europe totals 5.8 million mt/year.
An MTBE plant uses roughly 35% methanol in the production process, which means that this expansion will add around 57,000 mt/year of methanol demand.
Demand from the acetic acid producers should remain fairly steady with no expansions planned and the only upside coming from a possible increase in run rates at the BP's 520,000 mt/year plant in Hull, northeast England.
"Demand for methanol from domestic AA production will be fairly consistent. As a net importer the acid market depends mainly on the supply outlook from other regions like Asia and the US, where we get a lot of material from," an AA producer said.
AA production processes require approximately 53% of methanol.
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Demand from derivatives to inch higher, energy stalled
These sentiments were echoed in the formaldehyde market, where sources anticipated production capacities in Europe to remain unchanged as the volatile properties of the material make inter-regional shipments difficult.
One formaldehyde producer said that most European producers had a fixed customer base with most formaldehyde facilities in Europe running at close to nameplate capacity.
Formaldehyde production is the biggest application for methanol, accounting for approximately one-third of global methanol demand, and is dependent on the construction, automotive and furniture markets.
Low crude oil prices, meanwhile, are hampering prospects for methanol demand in energy applications such as di-methyl-ether (DME) which is used as a diesel substitute, sources said.
"If the general energy complex is heading down, it makes it hard for the more exotic uses of methanol such as DME to take off," a source said.
Not all market participants shared these sentiments though: "The global methanol economy will grow so long as methanol moves in line with crude prices," ChemBioPower CEO Antonio Anselmo said. "DME for electricity generation and marine fuels are prime opportunities for growth in the methanol market."
Current primary applications for DME are as a propane supplement in cooking gas, aerosol spray-can propellant, solvent and chemical feedstock.
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"If the general energy complex is heading down…”
Asian prices are continuing to spiral down amid high inventories, as current naphtha prices are leaving MTO projects unprofitable.
In addition, with high inventory levels and the Chinese Lunar New Year in mid-February sources expect little demand from the region for additional spot cargoes until after the two-week holiday.
Asian spot prices were last assessed at $240/mt CFR China January 6, representing a 27% decrease since the beginning of December.
During the same period the CFR Southeast Asia marker lost 17% to be assessed $302/mt January 6.
Meanwhile NWE spot prices have registered only a 6.5% decrease since the beginning of December to be assessed Eur289/mt (around $345/mt) FOB Rotterdam January 5, as Europe is less exposed to MTO applications making the region an attractive destination for Asian material, sources said.
With freight between Rotterdam and Far East Asia at $112.50/mt, according to Platts data, sources expected the arbitrage between the two regions to open in Q1.
The arbitrage is currently closed on paper.
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Asian arbitrage looming
Thank You
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