2016 Asia Outlook 2016 Olefins Polymers 0116 View

8/19/2019 2016 Asia Outlook 2016 Olefins Polymers 0116 View

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PETROCHEMICAL SPECIAL REPORT

JANUARY 2016

ASIA OUTLOOK 2016OLEFINS AND POLYMERS

www.platts.com/petrochemicals



SPECIAL REPORT: PETROCHEMICALS ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

2Copyright © 2016 by Platts, McGraw Hill Financial

FOREWORD

Increased competition among olens producers trying to holdon to or expand market share amid the increasing oversupplyof polymers in China is widely expected in the rst half of2016. The new game changers – methanol-to-olens andpropane dehydrogenation plants – are facing a erce rebound

in competitiveness from naphtha-based olens producers.Even coal-to-olens is facing renewed competitiveness andwill continue to have no competitive edge over naphtha-basedpetrochemicals production in H1 2016 if crude oil prices do notrebound signicantly. Many of these MTO and PDH plants wereplanned and construction launched when global crude priceswere in the three digits. Now the plunge in crude and naphthaprices is proving deeper and more prolonged than many hadanticipated, ercer competition for market share is expectedin H1 2016. A possible solution that some market sources see isincreased polyethylene and polypropylene exports out of Asia,with producers hoping to move their surpluses to non-Asian

markets such as Africa and Latin America. In China’s case,its PP excess could be increasingly redirected even closer tohome as well, such as to Southeast Asia. Demand is expectedto remain bearish as long as crude does not rebound rmly andthe direction of China’s economy remains unclear. In addition,many end-users across Asia are already faced with highercosts for dollar-denominated raw materials as their respective

currencies have weakened. What is the outlook for olens andpolyolens in Asia in H1 2016? This, and more, can be found inthis rst-half outlook for 2016 from Platts. — Clement Choo,

[email protected]

OLEFINS

ASIAN ETHYLENE TO REMAIN TIGHT IN

2016 AMID STABLE DEMAND

Asian production will fall as older production units in Japan and

Taiwan are scrapped and downstream derivative plants start up

tapping into existing supply.

The Asian ethylene market is likely to remain tight in 2016 as

demand stays stable in line with the startup of a new derivativesunit, while no major steam cracker expansions are planned inthe region, market sources said.

In 2015, Asian ethylene prices were lower than in 2014.According to Platts data, CFR Northeast Asia ethylene hasaveraged $1,102/mt in 2015 compared with $1,425.69/mt in thewhole of 2014.

The Asian ethylene market has been under pressure frommacroeconomic factors such as the economic slowdownin China. The Caixin/Markit purchasing managers’ indexfor September was at a 6 1/2-year low of 47.2, comparedwith 47.3 in August. In October, the index rose to 48.3 butwas still below the 50 points level, which represents acontraction.

But the decline in prices has been smaller compared with that offeedstock naphtha amid supply tightness. Platts data showedthat the Asian ethylene-naphtha spread was the widest inalmost nine years.

The spread between ethylene and naphtha was $862/mt onApril 28, the widest since September 18, 2006, when it was$886.88/mt, Platts data showed.

The typical breakeven spread is $300-$350/mt. The Asianethylene-naphtha spread has averaged $605.84/mt so far in2015, compared with $563.77/mt in 2014, according to Platts data.

“Asian steam cracker operators enjoyed so much prot in 2015,”said a market source.

Japan’s Mitsubishi Chemical Holdings in November increased

its prot forecast to Yen 248 billion for scal 2015-2016 (April toMarch), up 9% from the previous guidance in May. SumitomoChemical also forecast a record operating prot of Yen 155billion for scal 2015-2016.

In 2016, the current trend of high ethylene prices and goodmargins are expected to continue.

“There is some new ethylene requirements in 2016 from newderivatives plants. On the other hand, no major ethyleneexpansions are planned for 2016,” a market source said.

In Taiwan, the USI Group plans to startup two new ethylene vinylacetate/low density polyethylene plants in Kaohsiung in the rstquarter. Both plants will have the capacity to produce 45,000mt/year of EVA/LDPE.

ETHYLENENAPHTHA PRICE SPREADS WIDENS ON TIGHT SUPPLY

0

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400

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0

500

1000

1500

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2500

Source: Platts

($/mt) ($/mt)

2013 2014 2015

Spread (left)

Naphtha CFR Japan (right)Ethylene CFR Northeast Asia (right)

TURNAROUND SCHEDULE FOR SOUTH KOREA’S NAPHTHAFEDSTEAM CRACKERS IN 2016 (‘000 mt/year)

Company E/P capacity Location Timing

KPIC 470/230 Ulsan No turnaround

YNCC (1) 860/485 Yeochun No turnaround

YNCC (2) 580/270 Yeochun Mar 15-Apr 15

YNCC (3) 470/230 Yeochun No turnaround

SK Innovation(1) 200/140 Ulsan No turnaroundSK Innovation(2) 660/360 Ulsan Mid-Sep, one month

LG Chem 900/450 Daesan No turnaround

LG Chem 1,000/550 Yeochun No turnaround

Lotte Chem 1,000/500 Yeochun Apr, 30 days

Lotte Chem 1,000/500 Daesan No turnaround

Samsung Total 1,000/600 Daesan No turnaround

E=ethylene; P=propylene

Source: Company and market sources





“The [number of] cracker turnarounds in 2016 is fewer than in2015. But the Asian ethylene supply will likely remain tight in2016,” said another market source.

Three steam crackers are due to be shut in 2016 in SouthKorea compared with four in 2015. South Korea’s total ethylene

production capacity is 8.14 million mt/year. The three crackersto be shut in 2016 account for 2.24 million mt/year or 28% of thetotal capacity. In 2015, about 46% of the total capacity was shutfor maintenance.

Some steam crackers in the region will be shut permanentlysuch as Taiwanese CPC’s 500,000 mt/year facility inKaohsiung that was mothballed at the end of 2015. Japan’sAsahi Kasei will shut its 470,000 mt/year steam cracker inMizushima in February.

Meanwhile, initial oers from term contract ethylene suppliers

for 2016 were $20-30/mt higher from 2015.

“We have been suering from negative margins (in 2015). Wecannot accept such a price increase,” said an ethylene end-userin Northeast Asia.

Most ethylene derivatives producers suered from negativemargins in 2015 due to high ethylene costs. The Asian PE-ethylene spread narrowed to minus $10/mt on December 2, withthe typical breakeven spread at plus $150/mt. It is the rst timesince January 21 in 2014 that the spread turned negative.

Term contract talks were likely to stretch to January, the

sources said. “Ethylene suppliers want to maximize their protsbefore major steam cracker expansions using shale gas in2018,” said another ethylene end-user.

Ethylene surplus in the US is expected to widen to 5.5 million mt in2018, compared with 233,000 mt in 2015, according to METI data.Ethylene surplus in 2016 is expected to remain at from the 2015estimate of 201,000 mt. — Fumiko Dobashi, fumiko.dobashi@

platts.com; edited by E Shailaja Nair, [email protected]

INCREASED PROPYLENE CAPACITY IN

ASIA TO WEIGH ON 2016 MARKET

An oversupply situation that emerged late 2015 is expected to

continue into 2016 as fresh production hits the market.

Asian propylene is likely to face supply pressures in 2016, with anew plant expected to come on stream in the rst half, adding tothe existing oversupply from a slew of new projects that startedup in late 2015.

SK Advanced, a joint venture between SK Gas and AdvancedPetrochemical, plans to start trial runs at its new 600,000 mt/year propane dehydrogenation plant at Ulsan in South Korea inthe rst half of 2016. Some sources felt that the plant may startup in the later part of the rst quarter, and with one noting thatpropane prices tend to be higher in winter.

This new plant comes on top of the new propylene production

capacities in 2015, at around 2 million mt/year. In China, OrientalEnergy started up a 600,000 mt/year PDH unit at Zhangjiagangand Yantai Wanhua Chemical a 750,000 mt/year PDH plant inShandong, while in South Korea, Hyosung Corp. brought onstream a 300,000 mt/year PDH plant in Ulsan and YNCC startedup an olens conversion unit in Yeosu that can produce 140,000mt/year of propylene.

Most of the new plants came online in the second half of 2015,

leading to weaker prices, which depressed production marginsand in turn prompted PDH and OCU operators to cut run rates.

Japan’s Mitsui Chemicals shut its 140,000 mt/year Osaka OCUin October and South Korea’s YNCC its 140,000 mt/year OCU inNovember.

A source at a producer in Japan said earlier that OCU operators’run rates could face further pressure in 2016, if rm ethyleneprices squeeze margins. Lower production at OCU plants maysee OCU operators having less impact on the propylene balancein 2016, he said.

“It’s not easy to [see an improvement in] OCU margins (in 2016)because ethylene prices are strong,” said a source at a producerin South Korea.

Japan’s Asahi Kasei plans to permanently shut its Mizushimasteam cracker in February 2016, which can make 470,000 mt/

PROPYLENE PRICES SINK ON GLUT, FRESH PRODUCTION ($/mt)

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800

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Source: Platts

2013 2014 2015

Propylene CFR ChinaPropylene FOB Korea

TURNAROUND SCHEDULE FOR JAPAN’S NAPHTHAFED STEAMCRACKERS IN 2016 (‘000 mt/year)

Company E/P capacity Location Timing

Idemitsu 374/224 Chiba No turnaround

Idemitsu 623/450 Tokuyama Early Sep to late Oct

Keiyo Ethylene 700/400 Chiba No turnaround

Maruzen Petchem 550/230 Chiba May-Jun, 50-60 daysMitsubishi Chem 495/320 Mizushima No turnaround

Mitsubishi Chem 375/170 Kashima (1) Scrapped in 2014

Mitsubishi Chem 526/260 Kashima (2) Early May, one month

Mitsui Chem 600/331 Chiba No turnaround

Mitsui Chem 500/280 Sakai No turnaround

JX Nippon 404/260 Kawasaki End-July, 60 days

Asahi Kasei 470/300 Mizushima To be scrapped in Feb

Showa Denko 695/425 Oita No turnaround

Sumitomo Chem 416/288 Chiba Scrapped in early 2015

Tonen Chem 515/300 Kawasaki No turnaround

Tosoh 527/270 Yokkaichi Mar-Apr

E=ethylene; P=propylene

Source: Company and market sources







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capacity in China and the rapid growth it has been showing justin the past two years, while growth in MTO capacity is expectedto balloon further in 2016.

This comes as the crude oil price slump – which started inmid-2014 from three-digit levels falling to around $40/b in early

December – shows no sign of ending soon.

MTO capacity to grow but plunging naphtha poses threat

The scale of China’s MTO olens capacity is huge, and it is set totriple from around 1 million mt/year at the end of 2014 to close to3 million mt/year at the end of 2015. It is forecast to rise past 6million mt/year by end-2016, according to industry sources.

This means methanol demand would potentially increase from 3million mt/year in 2014 to 9 million mt/year at end-2015 and to 18million mt/year at end-2016.

However, this all depends on the operating rates of these MTOplants, which is tightly knit with the competitiveness againnaphtha-based olens producers in Asia. And this could be themajor hurdle: construction of many of these MTO plants startedin an era of relatively high crude prices.

Weak crude typically leads to lower naphtha costs. Naphtha isthe major feedstock for olens production in Asia and thereforecompetes with MTO plants in this eld. Outside of China,methanol is largely produced from natural gas, and inside Chinamore than 90% of it is made from coal.

With rising methanol demand in China for MTO in 2015, methanol

prices have been lagging the fall in crude and naphtha prices.For instance, methanol on a CFR China basis has fallen 32.6%since June 2, 2014, to $230/mt on December 9, while naphthaprices on a C+F Japan basis has fallen 54.7% during the sameperiod to $428/mt.

Therefore, a key concern for MTO producers in 2016 will be iftheir demand is too strong, they will easily drive up the methanolspot prices, or at least provide a oor, and with that they pushdown their own protability as their major competitors in Asiahave seen their feedstock costs dropping faster, sources said.

Although ethylene and polyethylene are still consideredprotable for MTO producers, propylene and its derivative

polypropylene are not considered protable at all for MTOproducers at the moment.

Protability at MTO is not seen as improving any time soonduring 2016 and could deteriorate further with more MTO

capacity being brought online, potentially meaning moremethanol demand and support for methanol prices.

This rm demand in China for methanol is reected in rising2015 imports. In January-October, China imported 4.542 millionmt of methanol, up 4.8% year on year, according to ChinaCustoms Statistics Information Center data. China’s methanolimports could keep rising in 2016, along with global supply.

The US is having a construction boom of methanol plants asa result of the surge in shale gas production. This increasingoutput will shake up trade ows as the US is a major netimporter of methanol at the moment, importing over 6 million

mt in 2014, according to US Department of Commerce data.

The largest suppliers to the US are typically Trinidad and Tobago,which supplied close to 4 million mt in 2014, and Venezuela withclose to 1.3 million mt.

This means cargoes from South America and the Caribbeanwould have to nd homes elsewhere – likely in Europe and Asia– displacing Middle Eastern cargoes in the European market,according to industry sources in mid-November. This couldresult in more Middle Eastern cargoes being diverted to Asia.

If not from imports, China could see more methanol availableif demand destruction takes place in other major end-users hitby falling energy prices, such as direct gasoline blending anddimethyl ether. DME can be used as a fuel on its own, but inChina it is mostly used for blending into LPG, which is attractiveto do when LPG prices are relatively high compared to methanol.The share of gasoline blending in methanol demand is around20% and for DME around 15%-20%.

Methanol supply in China could also rise as a result of higheroperating rates. While it has massive methanol capacity of 55million mt/year – the largest in the world – operating rates havebeen relatively low, at around 50% in recent years. But any rateincreases will depend on China’s domestic methanol prices,economic growth, competitiveness of domestic production andultimately demand from the planned MTO plants.

ETHYLENE FROM METHANOL CHEAPER THAN SPOT PRICE

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Oct-15Aug-15Jun-15Apr-15Feb-15Dec-14Oct-14Aug-14Jun-14 600

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Source: Platts

($/mt) ($/mt)

Spread (left)Ethylene CFR NE Asia (right)C2 costs from spot methanol (right)

HDPE FILM HIGHLY COMPETITIVE

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Oct-15Aug-15Jun-15Apr-15Feb-15Dec-14Oct-14Aug-14Jun-14900

1100

1300

1500

1700

Source: Platts

($/mt) ($/mt)

Spread (left)HDPE Film CFR FE Asia (right)PE costs from spot methanol (right)





China’s methanol output could also rise from producers that usenatural gas as a feedstock.

The government cut gas prices for industrial users by Yuan0.70/cu m from November 20. This could support production ofmethanol from natural gas, which had turned unattractive as a

feedstock due to relatively high prices previously. The tari cutwould be equivalent to a fall in feedstock costs of Yuan 647.50/mt of methanol produced.

One trader estimated that around 5 million mt/year of naturalgas-based methanol production capacity could be broughtonline because of the lower feedstock costs.

Decisive year for MTO footprint

This year is likely going to be very important for MTO not onlybecause massive new capacities will be brought online.

First, will MTO be able to continue operations in an environmentwhere naphtha prices have regained their competitiveness?This renewed competition from naphtha-based producers mayput downward pressure on petrochemical prices in Asia, hittingthe protability of these MTO plants in China even further.

Although it is dicult to predict the direction of crude oil prices,although many market sources do not think it will rebound to$100/b any time soon.

Another point of concern for MTO is whether economic growth

and polymers demand in China lags the projected growth due toa global or domestic economic slowdown.

Many producers are moving ahead with these MTO projectsbecause they expect demand to continue rising for both PEand PP in China in the years ahead. And even with the increasein polymers capacity in China, demand for polymers is set toskyrocket further and set to double for both PE and PP between2014 and 2025, according to Platts Petrochemical Analytics.

But what if economic growth stutters and derails furthergrowth plans? The country could be easily swept into a supplyglut of polymers, and which could pressure the protability ofthe MTO plants.

As a result, methanol prices could become tightly linked witholens and polyolens prices during 2016, and swing up anddown depending on the prot margins that these MTO plantscan reap. — Anton Ferkov, [email protected]; edited by

Meghan Gordon, [email protected]

POLYMERS

ASIAN PE’S RECOVERY IN 2016 LIES IN NEW,

REGULAR TRADE FLOWS OUTSIDE OF REGION

Among the factors to look out for are: Bearish economies hitting

PE demand, oversupply with new Middle East plants and Chinese

CTO projects and naphtha feedstock being more attractive in a

low oil price environment.

Polyethylene will not escape the bleak outlook hanging overother petrochemical products in Asia, but there is a glimmer ofhope as PE starts seeing new and regular trade ows to marketsoutside of the region.

Oversupply amid weaker demand, the catchphrase in today’sAsian petrochemical market, has set expectations for a

slowdown in demand growth to 3%-5% for 2016 compared with2015, according to Middle East producers. This downtrend couldbe curbed, if the excess supply reaches out to healthier demandmarkets in Africa and Latin America, specically Peru andColombia, sources said.

A number of producers in Asia said they plan to continueredirecting cargoes into African markets. This movement had

started a few years ago, with sellers wanting to diversify theircustomer base, but was never a regular trade ow. That isset to change with excess PE supply in Asia as well as lowerfreight rates amid weaker bunker fuel prices. In addition, thePE decit in Africa is expected to reach 2.1 million mt by 2025,according to Platts Petrochemical Analytics, amid the increaseduse of plastics. This market used to be supplied by some localproduction in South Africa as well as from Egypt and Nigeria.

The Asia to Latin America PE ow, especially South America’swest coast, is another new movement that would help soakup Asia’s excess barrels. A few Asian producers said theywould continue to move material into Latin America, which

PP RAFFIA FALLS INTO LOSSES FOR MTO

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Source: Platts

($/mt) ($/mt)

Spread (left)PP Raffia CFR FE Asia (right)PP costs from spot methanol (right)

PROPYLENE TURNS UNATTRACTIVE FOR MTO

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Source: Platts

($/mt) ($/mt)

Spread (left)Propylene CFR China (right)C3 costs from MTO (right)





was reacting to Asia’s more competitive prices and the lowerfreight rates.

Some Chinese bonded warehouse re-exports will continue to beooaded in Vietnam and Thailand due to proximity, accordingto traders.

Demand hit

Asian demand for PE is not seen to be recovering yet, asthe downstream sectors – automobiles, construction andpackaging – were decreasing operating rates at their plants

due an economic slowdown in China, the biggest PE market,sources said.

The decline in the value of Asian currencies versus the dollarhas also weighed heavily on the region’s PE market, as most areimporters of PE.

Most of PE’s applications – in lm, personal care containersand raa are consumer led – have already been hit by weakereconomic growth.

Low cash liquidity amid the current economic climate is anotherfactor impacting buying.

Excess supply

The PE market in the Asian region is oversupplied due to newChinese and Middle East PE capacities coming online.

PE from coal-to-polyolen plants will ood the market in 2016,sources said. The devalued yuan helped to push down the

production cost for these plants.

China’s PE production is expected to grow by over 30% year onyear in 2016, if all projects that aim to derive PE from coal andmethanol start up as originally planned, according to PlattsPetrochemical Analytics. Coal to PE projects currently totalaround 4.6 million mt/year.

As a result, the overall PE decit in China is expected todecrease from 6.7 million mt in 2015 to 6.2 million mt in 2016,according to Platts, once the additional capacity comes online,with assumptions of around 60%-80% operating rates.

From the Middle East, additional output is also expected – SaudiArabian Sadara Chemical’s 350,000 mt/year LDPE plant and

two LLDPE lines totaling 750,000 mt/year that will start up byend-2016; and Kuwaiti Equate’s debottlenecking of an additional175,000 mt/year of PE at its plant by mid-2016. These additionalsupply, most of it bound to Asia, may turn some Asian countriesinto exporters, sources said.

Meanwhile, not much excess supply is expected to head intostorage as inventory levels are expected to stay low in a riskadverse uncertain macroeconomic situation.

“[As a result,] I expect the market to be more volatile as no oneis keeping a cargo buer,” a major trader said.

Trade liquidity of specialized grades to get a boost

The switch to more specialized PE grades – such as frombutene-based LLDPE to metallocene based-LLDPE, or mLLDPE,– is likely to continue into 2016, as prices for the better qualitymLLDPE has come o, industry sources said. Metallocene PE

has better processing qualities and tensile strength.

The drop in mLLDPE prices has encouraged end-users to seekmore of that specialty grade plastic resin, boosting prots formLLDPE producers as well as market share, as it is not easyfor end-users to easily switch from mLLDPE to butene-basedLLDPE again.

Coal-to-polyolen plants all produce butene-based PE.

More plastic converters might use hexene-grade, or C6,metallocene linear low density PE, in their resin formula, insteadof C4-LLDPE, since they will be getting a higher quality polymer.

C6-mLLDPE is around $100/mt more expensive than normalbutene-based LLDPE, but this spread is narrower than thetypical C6/C4 spread of $150/mt.

Naphtha feedstock a bigger draw

Most sources expect integrated naphtha-based PE productionto remain protable in 2016, as the PE-naphtha price spread– averaging around $700/mt in 2015 so far – has rmly stayedabove the breakeven production cost of around $550/mt.Unintegrated producers may, however, resort to forced closuresor a drop in operating rates, sources said.

Alternatively, unintegrated producers may mull cutting PEproduction and selling o feedstock ethylene if both continue tostay at similar prices, sources added.

Naphtha-based feedstock continues to be competitive ina low oil price environment in Asia. Although polyolensmanufactured from the coal route did rise, the full capacityincrease will not be fully felt, with some of those plants loweringrun rates or undertaking maintenance due to market weakness,China-based sources said.

India-Singapore FTA to boost ow of

specialty grades to india

PE shipments of specialty grades from Singapore to India areexpected to pick up in the long term following a free tradeagreement that took eect December 1, sources said.

C6 MLLDPE PRICE DIFFERENTIAL OVER C4 LLDPE NARROWS

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09-Dec25-Nov11-Nov28-Oct14-Oct30-Sep20

40

60

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Source: Platts

($/mt) (price differential, $/mt)

C4 LLDPE CFR FE Asia (left)C6 mLLDPE- C4 LLDPE (right)

LLDPE Metallocene C6 CFR S Asia weekly ( left)





PETROCHEMICALMARKET ANALYSISUnderstanding complex petrochemical markets

is crucial in gaining a competitive advantage.

The global petrochemical

feedstock slate is becomingmore diverse. As producersstrive for a cost advantage,low-cost feedstocks

are fueling investmentsdecisions.

Platts’ analysis of the global petrochemical markets allows you to dig deeper into:

• Supply and demand

Understand which regions have

a supply surplus and which have

a decit – and the impact new

capacity additions will have.

• Long- and short-term coverage

See how regional and global

capacity will change over the next

12 months, or throughout the next

10 years.

• Global trade ows

Track how global trade ows are

changing and understand what this

means for each regional market.

• Variable cost curve

See where each petrochemical

facility sits on the variable cost

curve and how cumulative capacity

additions are afecting regional

production costs.

• Coal-to-Olefns projects

See new planned projects, together

with the location, capacity and

on-track status for each.

www.platts.com

For more information on Platts’ Petrochemical Analytics, visit: www.platts.com/petrochemicals

Platts’ analysis of the petrochemical markets is delivered through outlook reports,

datasheets, visualization tools and direct access to our analysts.





India doesn’t produce some specialty grades like mLLDPE, butsources in both markets do not expect this to have much impactinitially, because the duty imposed was small and demand hasbeen poor.

Singapore’s PE shipments to India were previously hit by a 0.6%

duty of their CFR value, but this was removed December 1,according to an ocial statement from India’s nance ministry.

One Indian producer said he will continue to watch for signs,since the FTA could increase competition with Singaporeproducers. “Our local selling price may decrease,” hesaid. — Heng Hui, [email protected]; edited by Geetha

Narayanasamy, [email protected]

NEW CHINESE CAPACITY TO OUTPACE

ASIAN PP DEMAND GROWTH IN 2016

China is likely to add 3 million mt/year capacity by end-2016 while

Southeast Asia will see higher supply from China. Meanwhile,

India’s H1 2016 market is expected to be weak on ample domestic

supply and imports.

Asia’s polypropylene market is expected to be weak during therst half of 2016, with projected demand growth outpaced bynew capacity coming on stream in China.

Total PP demand in Asia is forecast to rise by nearly 6%, or2 million, from 2015 to 36.7 million mt in 2016, with Chinaaccounting for nearly 60% of demand, according to Platts

Petrochemical Analytics.

But China is also rapidly building up production capacity, withup to 3 million mt/year of new capacity expected to come onstream in 2016 – outpacing the expected growth in demandthroughout Asia.

Coal-to-olens linked PP is expected to make up more than halfof this new capacity in China, with the rest from methanol-to-olens and propane dehydrogenation projects.

Of the planned 3 million mt/year capacity, 1 million mt/year is

expected to start up in Q2 2016. They are: China Coal MengdaNew Energy’s 300,000 mt/year CTO-linked PP plant in InnerMongolia’s Ordos, Shenhua Group’s 300,000 mt/year CTO plantin Xinjiang, and Ningbo Fortune’s PDH-linked PP plant in Ningbo.

Another 2 million mt/year of new PP capacity is scheduled forstartup in H2 2016, notably Sinopec’s Zhong Tian He ChuangEnergy, a CTO-linked plant with 700,000 mt/year of capacityin Ordos, although delays may happen depending on marketconditions, sources said.

Last year, China added 900,000 mt/year of new capacity fromthree plants, including Shenhua Group’s 300,000 mt/year CTO-linked PP plant at Yulin. Further increase in capacity in 2016will tip the country into a PP homopolymer exporter, marketsources said.

New capacity tipping China towards PP exports in 2016

China has already started exports of commodity grade PPhomopolymers in 2015, said Chinese traders and SoutheastAsian end-users. And exports are on track to top 150,000 mt in2015, up 25% from 2014, according to industry data.

An analysis of China’s trade data for January-October exportssuggests a more nuanced picture, as half of the volumecomprises re-exports from bonded warehouses.

About a quarter of the volume is identied asdomestically produced homopolymers, according to atrader, where Sinopec’s naphtha-based PP supply makesup 50% of the volume.

But recently, CTO-linked PP has been oered to Southeast Asiain small quantities, according to multiple industry sources.

“PP raa is already exported to Vietnam, I expect (in 2016) itwill also go to ASEAN [Association of Southeast Asian Nations]countries, especially Thailand, due to its free trade agreement[with China],” said a trader after attending a recent strategypresentation conducted by a CTO company.

A opportunity for exports typically opens whenever Chinesedomestic prices fall to Yuan 6,300/mt or below, equivalent toless than $800/mt on an import parity basis, noted anothertrader, adding that his rm oered CTO material into Vietnam at$910/mt in late November.

A source from a major Japanese trading company also

concurred, noting his rm has been testing the waters by buying500 mt each month from a Chinese MTO producer and selling toVietnam and Latin America.

Conversely, the rapid expansion of domestic supply has sloweddown imports into China. The country imported 263,935 mtof PP homopolymer in October, down 7% compared with thesame month in 2014, according to latest data from the GeneralAdministration of Customs.

CHINA POLYPROPYLENE PLANT STARTUPS, 20152016

Plant Name Type Scheduled Capacity

(mt/year)

Started 2015

Shandong Shenda Chemical PP, Tengzhou MTO Jan-15 200,000

Zhangjiagang Yangtze Petrochemical PP, Zhangjiagang PDH May-15 400,000

Shenhua Group PP, Yulin CTO Dec-15 300,000

Total 900,000

H1 2016 highly likely

China Coal Mengda New Energy PP, Ordos CTO Apr-16 300,000

Shenhua Xinjiang Coal Liquefaction, Xinjiang CTO May-16 300,000

Ningbo Fortune PP, Ningbo PDH May-16 400,000

Total 1,000,000

H2 2016

Fund Energy PP, Changzhou MTO mid-2016 300,000

Qinghai Damei Coal PP, Xining City CTO mid-2016 400,000

SINOPEC Zhong Tian He Chuang Energy PP 1, Ordos CTO H2 2016 350,000

SINOPEC Zhong Tian He Chuang Energy PP 2, Ordos CTO H2 2016 350,000

Jiutai Energy PP, Ordos MTO H2 2016 350,000

Fujian Meide Petrochemical , Fujian PDH H2 2016 300,000

Total 2,050,000

Source: Industry Sources





Full-year 2015 imports of PP homopolymer is expected at 3.4million mt, down 6% from 2014.

But not all types of PP imports are trending down. China isexpected to import more than 1.3 million mt of block copolymergrade PP in 2015, up 8% from 2014, as higher value applications

for copolymers continue to grow.

Middle Eastern producers eye sales to Vietnam

Vietnam is expected to be one of Southeast Asia’s hottestgrowth market, with demand forecast to grow annually by7% in 2016 and beyond, according to Platts PetrochemicalAnalytics.

The country has virtually no domestic PP capacity, with theexception of PetroVietnam’s 150,000 mt/year plant at Binh Son.Vietnam’s annual PP decit is expected to reach 938,000 mt in2016, widening to 1 million mt by 2017.

Vietnam has the lowest barrier to entry for PP imports amongSoutheast Asian countries, according to industry duty data. Freetrade agreements with China and ASEAN members means PPimports from those countries are duty free, while supply fromIndia, Saudi Arabia and other countries incur a nominal importduty of 2%.

Still, Middle Eastern producers see Vietnam and Southeast Asiaas strategic growth markets. A quarter of Vietnam’s plasticimports come from Saudi Arabia, according to import dataobtained from a Vietnam-based trader.

“[In] Southeast Asia, there are potential growth [markets] likeMalaysia, Indonesia, Thailand, Vietnam. I think they will, for thenext 20-25 years, play the role that China has played for thelast 30 years,” Saudi Basic Industries Corporation CEO YousefAbdullah Al-Benyan told Platts in an interview in November.

Aggregate demand from Indonesia, Malaysia, the Philippines,Singapore, Thailand and Vietnam will exceed 5 million mt in2016, and is expected to grow at 5% annually over the next fewyears, according to Platts Petrochemical Analytics.

Even with rapid growth, Southeast Asia is not expected to

replace China’s massive PP consumption footprint, whichis estimated at 21 million mt in 2016, anytime soon. This willcontinue to add pressure on the export-oriented Middle Easternproducers in 2016, as China becomes more self-sucient.

India’s H1 2016 market expected weak on

ample domestic supply, imports

India’s PP demand is forecast at 4.1 million mt in 2016, up 7.8%compared with 2015, according to Platts Petrochemical Analytics.

But even with the projected strong growth rate, traders and end-users are predicting a weak H1 2016 for the PP market in India.

“Now that China is not buying, Middle East producers will needto give signicant discounts to oer into India, especially afterMRPL [Mangalore Renery and Petrochemicals Ltd.’s 450,000

mt/year PP plant] started up,” said an end-user, predicting thesupply glut to continue in 2016.

On the supply side, two plants are expected to start up in 2016:Brahmaputra Cracker & Polymer Limited’s 60,000 mt/year plantin Dibrugarh and the 340,000 mt/year ONGC Petro additions

Ltd’s plant in Gujarat, both starting up in H2 2016, sources said.— Huang Yi-Jeng, [email protected]; edited by Irene

Tang, [email protected]

ASIAN VINYLS MARKET EXPECTED TO BE BEARISH

IN 2016 ON CONTINUED IMBALANCE

Weaker margins in Asia are expected to be prolonged amid a glut

of PVC and VCM while EDC supplies grow thin.

The imbalance of the Asian vinyls market, including ethylene

dichloride, vinyl chloride monomer and polyvinyl chloride,looks likely to become worse in 2016 as EDC supplies becometighter, while VCM and PVC remain oversupplied, industrysources said.

PVC supply in the region has been more than ample with thestartup of new plants in Asia, especially in China.

Chinese PVC plants, which use coal as a feedstock, have led to asupply glut and it has been exporting in a bid to reduce stocks.

Japan’s Ministry of Economy, Trade and Industry said the Asiahad 1.11 million mt of PVC surplus in 2014, which is expected to

have risen to 1.16 million mt in 2015 and is expected to hit 1.5million mt in 2016.

China exported 1.136 million mt of PVC in 2014 against imports of550,015 mt, according to customs data.

In line with rising PVC supplies, margins have been weakening.Asian PVC margins turned negative from 2014, with the PVC-VCM spread averaging $134.52/mt, narrower than the $150/mt needed for breakeven. From 2011-2013, the spread hoveredaround $155-160/mt.

Market sources said Asian PVC supply was likely to increase in2016 with more new plants scheduled for startup. Indonesia’sAsahimas plans to startup its new 250,000 mt/year PVC unit

PVCVCM PRICE SPREAD REMAINS WEAK

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($/mt) ($/mt)

Spread (left)PVC CFR China (right)VCM CFR Far East Asia (right)





in Anyer in the rst quarter of 2016. Asahimas is likely to startselling PVC as early as January.

In addition, supplies from the US are also increasing. China’sPVC imports from the US over January – September were183,566 mt, rising 3.9% from a year earlier, according to Chinese

customs data.

Platts data showed that Asian PVC price has averaged $837/mtfor most of 2015, compared with an average of $1,018.54/mt inthe whole of 2014.

Some market sources said some material may beabsorbed by Australia, where a PVC plant is due to be shutpermanently early 2016. Australian Vinyls plans to mothballits 130,000 mt/year PVC unit in Laverton, Victoria, early2016. A market source said Australia would increase PVCimports following the shutdown but fresh requirements are

still unclear.

VCM tightness expected to ease

Structurally, the Asian VCM market is short. Japan’s METI hasforecast that Asia would be short of 209,000 mt of VCM in 2016,compared with 266,000 mt in 2015 and 534,000 mt in 2014.

Chinese customs data showed strong demand for VCM importsin 2015. China imported 624,859 mt of VCM over January-September, up 20.1% year on year.

On the other hand, Asian VCM prices fell in 2015. Accordingto Platts data, CFR Far East Asia VCM has averaged $693.28/

mt so far in 2015, falling 21.6% from the average price for thewhole of 2014.

Asian VCM is seen to be under pressure in 2015 in line with abearish PVC market and this is to continue in 2016.

On the other hand, EDC supply is expected to become tighter,following the startup of new Indonesian VCM plant.

Japan’s METI has forecast EDC decit in the region at 1.29million mt in 2016, up 12.8% from 2015.

Market sources see Asahimas cutting its exports of EDC, afeedstock for VCM, after the startup of the new VCM plant.

Despite supply tightness, Asian EDC prices are not expected togo up due to the expected inux of US cargoes.

China imported 480,232 mt of EDC over January to October2015, down 17.5% from a year earlier, according to customs data.China’s EDC imports from the US over January-October were304,240 mt, down 25.2% from the previous year.

Platts data showed that the CFR Far East Asia EDCaveraged $288.53/mt for most of 2015, down from theaverage of $444.15/mt in the whole of 2014. — Fumiko

Dobashi, [email protected]; edited by E Shailaja

Nair, [email protected]

CAUTIOUS RECOVERY SEEN FOR ASIAN POLYESTER,

FEEDSTOCKS PTA, MEG IN H1 2016

Platts’ analysis shows PTA prices are foreseen to be stable to

rmer amid seasonal high demand while Chinese MEG imports

are forecast to exceed 8.6 million mt on rm demand. Higher run

rates are expected to be seen across Northeast Asian PET and polyester plants in the meantime.

Most Asian polyethylene terephthalate, polyester and feedstockproducers are cautiously optimistic of a recovery in feedstockpuried terephthalic acid and monoethylene glycol prices inthe rst half of 2016 – at least from March onwards – pulled byseasonal high demand for both polyester and PET resin, andimproved macroeconomic data from China and India.

Polyester demand from China is expected to remain healthythroughout 2016, according to a global producer, who also forecast

Indian demand growth to outpace the rise in global demand.

“Our forecast is for Indian GDP to exceed the 7.5% projected by theIMF [International Monetary Fund] for 2016. In terms of polyester,global growth is likely to be around 5% whilst we anticipate Indianpolyester demand to grow about 6%-7%,” he said.

The weak global demand seen during the second half of 2015for polyester and PET resin has markedly pressured down Asia’spolyester, PTA and MEG markets.

Negative China macroeconomics, reports of historical lows inChina’s Producer Price Index which dropped 5.9% in September

2015 from a year earlier – marking the 43rd consecutive monthof deation – and Chinese ash Purchasing Managers’ Indexwhich fell to a record 77-month low of 47.0 in September, haveall contributed to spook the market and diminish condence inany sort of recovery.

For polyester and PET feedstock PTA, prices have been underpressure since the start-up of mega worldscale plants in China,each over 1 million mt/year in size – between 2009 and 2013,which gradually culminated to an oversupply of PTA and pricedeclines and negative margins through 2014.

But a recovery in PTA prices was seen in Q2 2015 after China’sDragon Aromatics shut its paraxylene plant in Zhangzhoufollowing an explosion and re on April 6. This in turn, led XiangluPetrochemical to shut its 4.5 million mt/year PTA plant atZhangzhou and the 1.65 million mt/year PTA plant in Xiamen, asmost of its PX feedstock comes from the Dragon Aromatics plant.Since April 6, Asian PTA prices had climbed progressively throughto June, hovering at around $690/mt and $750/mt CFR China.

But since July, PTA prices had corrected on seasonal demandlull, and a lack of recovery in downstream PET and polyestermarkets. Asian PTA prices fell from $660/mt CFR China on July10 to $580/mt CFR China on September 28.

In terms of yuan-denominated domestic PTA prices, the priceslippage has been less sharp, and prices had in fact recovered





by early October. Major Chinese PTA producers are optimisticthat PTA prices will remain stable through to early February, andlikely rise in Q2 2016 as supply continues to be snug.

PTA prices stable to rmer in H1 2016

amid capacity cuts in china

China’s PTA production is expected to stay at 34.44 million mt/year in H1 2016.

Apart from Xianglu Petrochemical’s plants which were aectedby the outage of Dragon Aromatics’ Zhangzhou PX plant,China saw the permanent closure of 3.2 million mt/year of PTAcapacity after Shaoxing Yuandong led for bankruptcy earlierin 2015, ceasing operations at all its four plants at Shaoxing ineastern China’s Zhejiang province.

In fact, Chinese PTA producers have seen PTA margins derivedfrom yuan-denominated sales ipped to positive by late October

to around Yuan 100-220/mt prot.

“PTA margins are calculated based on a 0.66 multiplied by yuan-denominated PX feedstock prices, plus a conversion cost ofYuan 600-700/mt. At current PTA price of Yuan 4,720/mt and PXprice at Yuan 5,900-5,950/mt, margins are around Yuan 93/mtto Yuan 226/mt, depending on each PTA producer’s cost,” said aChinese producer.

“We expect to be able to enjoy positive margins through to Q2due to the absence of both Shaoxing Yuandong and XiangluPetrochemical from the PTA market, as well as the traditional

high season for polyester and PET, which would drive both

demand and prices of feedstocks PTA and MEG higher,” saidanother major Chinese PTA producer.

MEG margins to turn positive by Q2 on

robust demand from China, India

Asian MEG margins have been under pressure since the secondhalf of 2015, as a combination of low seasonal demand for PETand polyester, as well as reduced PET operating rates acrossNortheast Asia, have led to weaker buying interest for bothfeedstocks MEG and PTA.

Since July 10, the Asian MEG production margin was calculated

at minus $15/mt with Asian ethylene assessed at $1,230/mt CFRNortheast Asia and Asian MEG assessed at $873/mt CFR China.

The MEG production margin is calculated by multiplying theethylene price by a conversion of 0.6 and adding an estimated$150/mt in production costs.

Operating rates across downstream Taiwanese and SouthKorean PET and polyester plants were reported at around

80%-85%, while Chinese PET, polyester producers were heardoperating at even lower rates of 75%-80% in late Q3, andcurrently heard at around 70%-75%.

Run rates across Taiwanese, South Korean and JapaneseMEG plants are reported around 80%, while in China, rates areestimated at around 70% by taking the average of low 30%-40%for coal-based MEG production and around 80% for traditionalMEG production. Operation rates across Middle Eastern MEGplants are around 85%-90%.

“With current MEG prices hovering around $565/mt CFR China,

and ethylene contract prices around $890/mt CFR NortheastAsia, ethylene-based MEG producers are suering signicantlosses at around minus $115/mt. However, naphtha-basedproducers are still able to enjoy margins of around $50/mt, givencurrent naphtha prices at around $450/mt C&F Japan,” said aTaiwanese MEG producer.

“With seasonal demand expected to pick up from downstreampolyester and PET markets from March, we anticipate themargins for naphtha-based producers to improve ... we forecastMEG prices to improve to around $630-$650/mt by Q2,” theproducer added.

“Chinese imports of MEG have in fact increased since 2014.China imported 8.24 million mt of MEG in 2014, comparedwith 8.2 million mt in 2013 ... and will likely import around 8.5million-8.6 million mt in 2015. For 2016, China would likely importaround 8.6 million mt of MEG, if not more, based on the IMF’sforecast of 6.3% GDP,” he said.

A global MEG producer anticipates Indian demand to pick upin 2016, extending the upward momentum seen last year. Theproducer estimated India’s MEG imports in 2015 will reach justunder 1 million mt, and to exceed 1 million mt in 2016.

“Global supply of MEG will remain tight whilst non-conventionalsources of MEG supply will continue to be unstable. India’sReliance Industries will likely be able to start up its new750,000 mt/year MEG plant at Jamnagar in Gujarat only overOctober-November 2016. Further depleting supply into Asiawould be the regular maintenance turnarounds at the MEGplants located at Al Jubail and Shuaiba, owned by SaudiArabia’s Sharq Eastern Petrochemical Co., Jubail UnitedPetrochemical Co. and Equate, from January through August,”the global producer added.

Seasonal demand to lift PET prices,

improve/increase run rates

Asian PET and polyester makers have reduced operating ratesin Q4 2015 amid persistent bearish downstream demand. Runrates across Asian PET and polyester plants in Taiwan, South

ASIAN MONOETHYLENE GLYCOL PRICES FALL SHARPLY IN LATEQ4 2015 ($/mt)

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06-Dec15-Nov25-Oct04-Oct13-Sep23-Aug02-Aug12-Jul

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MEG CFR China WeeklyPET Bottle Grade FOB Northeast Asia Weekly

PTA CFR China





Korea and Japan are reported at around 75%-85%, while inChina, rates are said to average 75% of capacity.

Prices of Asian PET have fallen progressively from Septemberthrough to November due to falling MEG and PTA feedstockprices. PET margins, while remaining positive, have seen

signicant erosion.

The PET production margin is calculated by multiplying theMEG price by a conversion of 0.34 and multiplying the PTA priceby a conversion of 0.87, and adding an estimated $150/mt inproduction costs.

On October 7, the Asian PET production margin was calculatedat $18/mt, with Asian MEG assessed at $663/mt CFR China,Asian PTA at $600/mt CFR China, and Asian PET at $915/mt FOBNortheast Asia, Platts data showed.

“PET prices are likely to stay within a range of $900-$1,000/mt through March, with a potential upturn in prices during thesecond quarter, depending on demand, and also on MEG andPTA feedstock prices,” said a Taiwan-based PET producer.

“With improved downstream demand, Asian PET and polyesterproduction rates would likely be raised by Q2 to around 85%-90%across Taiwan, South Korea and Japan, while in China, rates wouldlikely be at the higher 80%-85% range,” the producer added.

Demand typically picks up following the end of the Lunar NewYear holiday season from early March and remains high throughend of June.

But market participants are uncertain about the strength ofrecovery in demand, given the lower growth forecast for China.

Indian polyester demand will however stay robust, with oneglobal producer anticipating growth at 6%-7% for 2016.

The IMF has forecast a slower GDP growth rate for China,at 6.8% for 2015 and 6.3% for 2016, from 7.3% in 2014. ForIndia, the fund sees GDP growth picking up in 2016 to 7.5%. —Jennifer Lee, [email protected]; edited by Irene Tang, irene.

[email protected]

FUNDAMENTALS FOR VAM SEEN POSITIVE BUT

AA LIKELY TO REMAIN BEARISH IN 2016

The outlook for acetic acid and vinyl acetate monomer is

mixed as AA is under pressure from oversupply and a weak

downstream market while tight supply and rm feedstock costs

prop up VAM. Also supporting the latter – VAM applications

continue to see robust demand.

The Asian acetic acid and vinyl acetate monomer marketsare seen to be heading in dierent directions early 2016, withAA coming under pressure from oversupply, low feedstockmethanol costs and lackluster downstream demand, while VAMpushes up amid tight supply and a robust downstream demand.

“The general feeling is that the trajectory [for acetic acid] isdownward for 2016,” a trader in China said. “Producers want topush out maximum cargoes but buyers have disappeared dueto bearish sentiment. Demand is also likely to tumble during the

Lunar New Year holiday period in February,” he said.

Feedstock methanol costs, which are expected to move down

in line with crude and energy values, will put more downwardpressure on AA.

“Many producers inside and outside China [have already] cutproduction or shut some plants mainly due to poor economics,”an industry source in North Asia said.

BP YPC Acetyls Co., for example, halted production at its500,000 mt/year AA plant at Nanjing, China, since end-

September due to poor margins, sources said.

“We are losing money [on some deals] due to low AA prices,” aproducer in China said, noting that the run rate at his company’sAA plant was already trimmed from 80% in October to 70%,and more cuts could ensue in light of the challenging marketconditions and weak downstream demand.

Puried terephthalic acid, or PTA, is among the fastest growingapplications within the AA market.

Existing PTA manufacturers are already suering fromexcess capacity, low production margins due to strongprices of feedstock paraxylene, sources said, adding that nonew major downstream PTA plant expansions were plannedin China for 2016.

VAM PRICES TREND UPWARDS FROM ENDOCT ($/mt)

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VAM CFR SE Asia WeeklyVAM CFR South Asia Weekly

VAM CFR China Weekly

ACETIC ACID PRICES FELL IN 2015 ($/mt)

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Acetic Acid CFR South Asia WeeklyAcetic Acid CFR SE Asia Weekly

Acetic Acid FOB China Weekly





VAM seen rm

With AA languishing in 2016, one would expect VAM – anotherdownstream of AA – to move in line, but VAM prices are likelyto be propelled by positive fundamentals and strong ethyleneprices, market participants said.

They estimate the CFR Southeast Asia marker to cross the$950/mt level in the coming months.

The CFR SEA VAM price was assessed at $880/mt onDecember 10, down 15.78% from the assessment on January 8,2015, while the CFR South Asia marker plummeted 16.43% overthe same period to be assessed at $890/mt on December 10,Platts data showed.

The main factor supporting VAM in 2016 is tight supply.

The Sinopec Group was heard to have declared a force majeure

at its Sichuan Vinylon plant on December 10, industry sourcessaid. The problem likely started on December 6 or December7 due to some feedstock concentration at the site and hasescalated since then, sources added.

Sinopec declined ocial comment.

Sinopec’s VAM plant at Chongqing, southwest China, has a totalnameplate capacity of 500,000 mt/year.

With Sinopec’s force majeure, supplies would tighten asSingapore’s Dairen VAM plant has already stopped oeringmaterial after Shell declared a force majeure recently,

sources said.

Shell declared force majeure on the supply of ethyleneand propylene from its steam cracker at Pulau Bukomin Singapore, industry sources said in early December.The Singapore steam cracker has a production capacityof 960,000 mt/year of ethylene, 540,000 mt/year ofpropylene, 186,000 mt/year of butadiene and 276,000 mt/year of benzene.

Strong ethylene prices are also expected to push up VAM.

The Asian ethylene market is likely to remain tight in 2016 asdemand stays stable in line with the startup of a new derivativesunit, while no major steam cracker expansions are planned,industry sources have said.

The CFR Northeast Asia ethylene marker has averaged $1,102/mt for most of 2015 compared with $1,425.69/mt in the whole of2014, data showed.

Meanwhile, VAM applications continue to see robust demand,sources said.

In Taiwan, the USI Group companies plan to startup two newethylene vinyl acetate/low density polyethylene plants inKaohsiung by the rst quarter of 2016, a source close to thecompany said.

“The swing plants can each produce 45,000 mt/year of EVA/LDPE, with the EVA output containing vinyl acetate content ofup to 40%, including all ranges of applications,” the source said.— Surabhi Sahu, [email protected]; edited by Haripriya

Banerjee, [email protected]

POOR DOWNSTREAM DEMAND, LOW NAPHTHALENE

PRICE KEEP ASIAN OX UNDER PRESSURE

A bearish outlook is foreseen for orthoxylene as demand

plunged in China in H2 amid weak production margins

for OX while naphthalene is becoming more popular in

downstream use.

Asian orthoxylene is expected to remain under pressure inthe new year amid poor demand for plasticizers, lower priceddownstream naphthalene-based phthalic anhydride and poor

margins for OX production, market sources said.

“The problem is that demand for plasticizers is low and fewertraders are trading OX, so liquidity is less. South Korea hasno exports and Taiwan also has less exports because [state-owned] CPC is not running its plants. The main supplier is India’sReliance Industries Ltd.,” a Singapore-based trader said.

OX is primarily used for the production of phthalic anhydrideor PA, an intermediate in the production of plasticizers suchas dioctyl phthalate. It is also used in other products such asunsaturated polyester resin and paint.

Plasticizers are used, among other things, to soften PVC tomake imitation leather.

However, market sources said Chinese PA producers who useOX as their feedstock were running their plants at an averagerate of below 50% in 2015 as plasticizer demand had weakened,most signicantly in the second half of the year.

Signicant demand drop in China

This made an impact on China’s OX imports, which slumped13% on average over July-October, compared to January-June,customs data showed.

When considering that this happened in the wake of theshutdown of one of China’s major OX producers, Taiwan-

ORTHOXYLENE PRICES FALL ON POOR DEMAND, COMPETINGFEEDSTOCK IN 2015 ($/mt)

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owned Dragon Aromatics, in April, the impact is even more

signicant. Combining these two factors, one China-basedtrader estimated that OX consumption in China decreasedby 10,000-20,000 mt/month from the rst half of 2015 to thesecond half.

China’s imports came in at a year-to-date low of 19,328 mt inOctober, customs data showed.

South Korea, previously one of the main suppliers of OX tothe Chinese market, has not exported any OX at all so farin 2015, customs data shows, as South Korean producershave kept run rates at a minimum, supplying only todomestic customers.

OX producers were also facing poor margins as its spreadagainst feedstock isomer-grade mixed xylene had turnednegative.

Isomer-MX was assessed at $655/mt FOB Korea on December11, $21/mt above OX which was assessed at $634/mt FOB Korea.

However, integrated producers have a spread of $204.80/mtabove naphtha at $429.25/mt CFR Japan, based on December11’s price assessment.

Naphthalene more competitive

The lower cost of naphthalene makes it a more ideal feedstock

for PA than OX, said sources.

Naphthalene, which is derived from coal and is a by-productof the steel industry, has seen prices fall, making it morecompetitive as a feedstock for PA. The naphthalene price in

Northern China was heard to be about Yuan 2,100/mt late lastyear. After adding freight cost to East China, the price wouldcome to about Yuan 2,400-2,600/mt, still much lower than OX at

Yuan 4,900-5,200/mt, market sources explained.

As a result, naphthalene-based PA is currently priced aboutYuan 700/mt lower than OX-based PA, a PA maker in China said.

China has a total OX-based PA production capacity of about 1.8million mt/year, and naphthalene-based PA capacity of about600,000-700,000 mt/year, market sources said.

Naphthalene-based PA is mostly used to make unsaturatedpolyester resin, but can also be used in the production of DOP,although discoloration can be a problem, sources said.

Looking to 2016, no major improvement in the demand for OX isexpected in the short term, sources said. But if idled OX plantslike Dragon Aromatics’ 200,000 mt/year plant in China andSingapore’s Jurong Aromatics’ similar-capacity OX unit, startup soon, supply would be added to what seems to be an alreadyoversupplied market.

So far, however, no restart dates have been announced foreither. — Gustav Holmvik, [email protected]; edited by

Haripriya Banerjee, [email protected]

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