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Transcript of SPeCIAl RePoRt: PetRoCHeMICAlS - .SPeCIAl RePoRt: PetRoCHeMICAlS ... Project Location FEED bidders

  • www.platts.com/petrochemicals

    SPECIAL REPORT: PETROCHEMICALS

    India to outweigh Chinese polyolefin demand growth over the next ten years

    September 2014

    by Hetain Mistry, Senior Analyst, Petrochemicals

  • PlAttS SPeCIAl RePoRt: PetRoCHeMICAlS | 2

    India to outweigh Chinese polyolefin demand growth over the next ten years

    IndIA TO OuTwEIgH CHInESE POLyOLEfIn dEMAnd gROwTH OvER THE nExT TEn yEARSGlobally, the regional growth centres for polyethylene (PE) and polypropylene (PP) are Asia, Central and South America, Central and Eastern Europe, South America and the Middle East. Asia and Africa, is forecast to show the strongest polyethylene demand growth over the next ten years, with 6% CAGR and 7% CAGR respectively, according to Platts Petrochemical Analytics. Out of Asia, Indian demand growth is projected to be stronger than Chinas, with the subcontinents PE demand expected to be 8% CAGR, compared to Chinas 6.1 % CAGR. In terms of polypropylene, Asia and Africa are both expected to exhibit the strongest growth in consumption over the forecast period with growth rates of 6% and 5% respectively. Within Asia, Indian demand growth is expected to outweigh Chinas with the former to register an annual growth of 7.7% over the next ten years, compared to Chinas 6.2%.

    Global demand is expected to average 4.8% for PE and 4.5% for PP, making Indias demand growth higher than the global market. However, Indias demand is working from a smaller base and, in absolute tonnage terms, is relatively small compared to China and in a global context.

    The nations share of global demand is set to increase from 5% to 7% between 2013 to 2025, which is a rise of close to 50%, putting it above the Middle East, Central and South America and Africa. During this period, India will reach half the size of the mature North American market. This shows the progress that India is expected to make, however the country will still lag significantly behind China in the years to come.

    Due to the huge potential of Indias petrochemical industry, we envisage India surpassing China in terms of demand growth. Furthermore, in terms of economic development, the South Asian giant remains behind China. Indias plastics penetration into traditional material based goods is yet to gather momentum, with per capita use relatively low compared to demand size. While this is true to China, it is not as low, with 15kg per person for PE and PP, compared to Indias 5kg per person for PE and PP. Incidentally, Indias per capita use is on a par with Africa. This illustrates there is a lot of progress to be made in India, as per capita use is still growing and has a long way to go.

    China and Indias gross domestic product (GDP) growth are forecast to be similar over the next ten years. However, Indias demand growth for PE and PP is expected to be much higher, as Platts Petrochemical Analytics forecasts higher multipliers of growth versus GDP for India, compared to the Far East Asian giant.

    For India we see growth of PE and PP to be 1.2 times GDP, whereas for China we see future growth below economic growth at 0.75 times GDP, underlying our belief that the Indias demand for plastics has a lot more potential.

    Population growth to play a partIndias stronger demand outlook will be boosted by its population growing at a faster rate than Chinas especially if the latter continues to adopt the one child policy.

    Polypropylene demand per capita

    Source: Platts

    0 5 10 15 20 250

    2

    4

    6

    8Projected % CAGR (2014-2025)

    Polypropylene consumption (2014) kg/capita

    Africa

    IndiaAsia

    Central andSouth America

    Eastern Europe

    Middle East

    Japan

    China

    Western Europe

    NorthAmerica

    Size of bubble indicates 2014market size in million mt

    32 19

    3

    3

    31

    4

    3

    7

    8

    Polyethylene demand per capita

    Source: Platts

    0 5 10 15 20 25 30 35 400

    1

    2

    3

    4

    5

    6

    7

    8

    9Projected % CAGR (2014-2025)

    Polyethylene consumption (2014) kg/capita

    Africa

    India

    Asia

    Central andSouth America

    EasternEurope

    Middle East

    Japan

    China

    Western Europe

    North America

    Size of bubble indicates 2014market size in million mt

    2239

    5

    5

    34

    5

    3

    12

    16

    0

    500

    1000

    1500

    202520182011200419971990

    Source: World Bank

    (millions)

    China and India population forecast

    IndiaChina

  • PlAttS SPeCIAl RePoRt: PetRoCHeMICAlS | 3

    India to outweigh Chinese polyolefin demand growth over the next ten years

    According to World Bank population forecasts, Indias rate of population growth is expected to be 1% year on year over the next ten years, compared to China which is predicted to flat line. As a result, by 2024, Indias population is forecast to catch up with Chinas.

    Indias ethylene/polymers industry remains smallIndias petrochemical industry is much smaller than Chinas with 9 operational ethylene crackers, whereas China has close to 58 crackers. In terms of future projects, China outweighs India on that front, even if we exclude the coal based olefins revolution that is taking place in the Far East.

    Currently, we see up to 18 ethylene crackers projects mooted in China, compared to three in India. Although, major petrochemical producers such as Reliance are undertaking construction of large world scale crackers using feedstock from their refineries, evidently more can be done in the future.

    No feedstock advantageUnlike the Middle East and the US, India does not have access to cheap feedstock whether it is gas or refinery stream based. The majority of existing facilities rely on naphtha coming from refineries as a feedstock for olefins production. China is similar in terms of their feed composition, having to rely on refinery supplies, however unlike India, China have invested heavily in petrochemicals and continue to do so.

    Taking a look at Indias net trade position of the petrochemical feedstock, it is currently a net exporter according to the latest set of annual data for 2013. Net exports have remained above 6 million mt/yr since 2010, illustrating that supplies remain ample, especially with recent refining additions.

    With this surplus, instead of major producers selling at a premium on the international market, refiners (especially the companies integrated with petrochemical facilities) could take a wider strategic outlook by discounting naphtha prices and divert their light end feedstock production to the domestic petrochemical industry in order to boost supply.

    Recent moves to capture US ethaneThe key Indian petrochemical producer Reliance has made moves to capture the cheap US ethane for their crackers. It has been an objective of the producer for a while to bring the feedstock in and recent moves by European producers has spurred the major into action. South Koreas Samsung Heavy Industries has been contracted

    to build six very large ethane carries (VLECs) in order the ship the ethane to India and these long haul movements are expected to feed Reliances Jamnagar refining and petrochemical complex in Gujarat on the west coast of India. This development is an encouraging sign that Indian petrochemical producers are looking to find a competitive feedstock in order to grow production, however having a viable competitive domestic feedstock.

    Indias PE and PP balancesThis investment across the olefin and polyolefin value chain is crucial when looking at the supply and demand balances of PE and PP. India is forecasted to remain in deficit over the next ten years and grow to a deficit of 4.3 million mt by 2025, quadrupling from the 2013 position. This is expected to materialise despite some projects coming on in the near term.

    Indian cracker projects (mt)

    Project Location FEED bidders/ FEED EPC bidders/ Estimated EPC Feedstock Capacity Estimated year awarded stage year awarded stage year use estimate of completionReliance Jamnagar Refinery Jamnagar Fluor 2012 Technip 2013 Refinery Off Gases 950,000 Q1 2015 Expansion Ethylene PackageBPCL Kochi Petrochemical Kochi 2014 2015 Naphtha 220,000 Q2 2018 Complex with Ethylene crackerONGC Naheij OPAL Ethylene Dahej Linde 2012 Samsung Engineering 2014 Naphtha 1,050,000 Q2 2016

    Source: Platts Petrochemical Analytics

    -6

    -4

    -2

    0

    2

    4

    6

    8

    10

    20252022201920162013

    Source: Platts Petrochemical Analytics

    (million mt)

    Indian PE supply/demand balance

    PE demand surplus/deficitPE production

    -4

    -2

    0

    2

    4

    6

    8

    20252022201920162013

    Source: Platts Petrochemical Analytics

    (million mt)

    Indian PP supply/demand balance

    PP demand Surplus/deficitPP production

  • PlAttS SPeCIAl RePoRt: PetRoCHeMICAlS | 4

    India to outweigh Chinese polyolefin demand growth over the next ten years

    For polypropylene the story is different in the context of the short to medium term, as PP surpluses will remain up to 2020, despite narrowing. The net trade position is expected to grow from 0.3 million

    mt in 2013 to 1.1 million mt by 2016 as projects come on stream and then fall back to 400,000 mt by 2018. The market is expected to remain balanced in 2019, and rise to surplus in 2020 when Essars project will boost supplies. However by 2022 a deficit 400,000 mt is expected, growing to 2.1 million mt by 2025, as demand growth continues without project expansions.

    The other question to ponder is could India explore other feedstock options not linked to oil and natural gas, following Chinas path?

    Current