Asia Chemical Conference 2020: COVID-19 a windfall for ABS producers

MOSCOW (MRC) -- Consumption of acrylonitrile-butadiene-styrene (ABS) has surged as a result of home quarantines imposed by the spread of COVID-19, with producers’ cash margin in excess of USD500/metric ton in 2020 and expected to rise above $600/metric ton in 2021, said Daniel Siow, IHS Markit director/styrenics on Thursday at the eighth Asia Chemical Conference, being held by IHS Markit in a virtual format, as per Chemweek.

The global economy was plunged into despair when COVID-19 first hit in early 2020 and a second wave is now recurring in major European countries and the US. This has meant that cities have to be locked down and working or schooling from home has become the norm until an effective vaccine can be discovered and large populations inoculated.

This disruption to daily live has turned out to be a boon for ABS, used widely in appliances and electronics, said Siow. The shift to home schools and offices means that computers and the peripherals such as monitors, mouses, and keyboards are now essential products, and being cooped up at home has led to rising demand for television sets and refrigerators, he added.

"Asian ABS producers, particularly those in mainland China, have benefited from the surge in demand and several producers have already sold out their cargoes in recent months to meet orders from end-product manufacturers,” said Siow. China’s refrigerator output for September was 9.36 million units, up 27% year on year (YOY) and washing machine output was 7.99 million units, up 11% YOY.

Based on IHS Markit’s assessment, the pent-up demand for computers and home appliances may take a longer time to pan out as millions of people globally are expected to continue “flexible work arrangements or telecommuting,” resulting in more demand for computers and computer peripherals.

In the automotive sector, China has also seen a strong rebound, registering September output at 2.46 million units, up 10.9% YOY and passenger vehicle sales for the month rose 12.9% YOY to 2.57 million units. “There is a possibility that China may become the first country globally to see production bounce back to 2019 levels sometime in 2022 or perhaps later,” said Siow.

With world consumption of ABS at 9 million metric tons/year (MMt/y) and concentrated mainly in Asia, it is critical that this region does not go through another massive COVID-19 lockdown that will impede its road to recovery, he added. There are 800 million middle-class consumers in Asia who are ready to spend and more than 80% of the new middle class will be in Asia in the next decade. So, products will still be made in Asia for Asia, and the region’s dominance in manufacturing will endure.

Meanwhile, the ABS average cash-cost margin of more than $500/metric ton in 2020 is unprecedented and the last time the industry benefited this handsomely was more than 30 years ago when supply was tight. “In 2020, the outbreak of COVID-19 caused serious disruptions in industrial activity, supply chain, and workforce arrangements. Asian ABS producers benefited from pent-up demand and the industry obtained record cash cost margins in excess of USD700/metric ton in the third quarter of 2020 and in October,” said Siow.

However, rapid ABS capacity expansion in China could put a dent in margins. IHS Markit indicates that about 3 MMt/y of new capacities may emerge in China as early as the fourth quarter of 2021. While these companies may be in a rush to start their plants because of huge cash-cost margins, there are currently technical, logistical, and perhaps even financial limitations. For Asian ABS producers, the solution to avoid overcapacity is to hope for demand growth to match or perhaps outpace supply growth, said Siow. Fortunately, China's average annual demand growth rate of about 7% translates to slightly more than 7.5 MMt/y of new demand expected by 2025. In that sense, perhaps when demand growth catches up with capacity growth after 2025, cash-cost margins will improve again for Asian ABS producers, Siow said.

According to the ICIS-MRC Price Report, January-September ABS imports to Russia increased by 3% compared to the same period last year and amounted to 25,300 tonnes against 24,500 tonnes. The share of South Korean supplies amounted to 63% (16,000 tonnes) against 56% (13,600 tonnes) in January-September 2019.
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UK extends, doubles plastic bag charge

MOSCOW (MRC) -- The UK government has recently confirmed that the country’s plastic carrier bag charge will be extended to all retailers from April 2021 and doubled to 10 pence (13 cents), reported Chemweek.

The current 5 pence charge was introduced in 2015 and applies to any retailer employing 250 or more people.

The government cites statistics showing that the charge has led to a 95% cut in plastic bag sales in major supermarkets in the UK. Extending and doubling the charge will take the country closer to its previously announced ambition to eliminate avoidable plastic waste over 25 years and “build back greener” after COVID-19, it says.

“Our carrier bag charge has been hugely successful in taking billions of harmful plastic bags out of circulation,” UK environment secretary George Eustice says.

The government says that as a result of the carrier bag charge, the average person in England now buys just four bags a year from the main supermarkets, compared with 140 in 2014. “By extending the charge to all retailers, ministers want to see bag usage cut significantly in small shops as well, with customers incentivized to use long-life bags made from more sustainable and environmentally-friendly materials,” it says.

As MRC wrote previously,due to protection measures against coronavirus, consumers no longer bring their durable bags to supermarkets, said Turkish Plastic Industrialists Research, Development and Education Association (PAGEV) in April 2020. According to Yavuz Eroglu, the president of PAGEV, consumers increasingly prefer single-use plastic bags during these pandemic days.

In the early days of the pandemic, Turkish Trade Ministry announced a new decision on the mandatory use of plastic bags in groceries and bakeries. Last year, Turkey issued a regulation in order to reduce to consumption of plastic bags. According to this, single-use plastic bags are subject to a fee of 0,25 Turkish Lira (0,03 Euro). However, this could be a burden on some people, Eroglu contends.

Turkey is the second largest producer in Europe following Italy. "Turkey is the third largest exporter in the world after China and Italy. Factories continue to produce single-use plastic materials and meet both domestic and global demands," said Eroglu. Turkey's top export market for single-use plastics is Israel with a share of 25%. Israel is followed by France, UK and the US.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased.
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Axalta to move to business-unit structure

MOSCOW (MRC) -- Axalta said that it will realign its business structure to fold most organizational functions into its two global business units, transportation coatings and performance coatings, according to Chemweek.

The two global business units will have full profit-and-loss (P&L) responsibility, a shift from the previously existing matrix organization in which regional business leaders had “primary financial responsibility,” Axalta says.

The plan follows earlier restructuring moves announced over the summer, and will involve the closure of Axalta’s offices in Center City, Philadelphia. Employees at those offices will be transferred to Glen Mills, Pennsylvania, a Philadelphia suburb that will become the site of Axalta’s headquarters, or to an office at the Philadelphia Navy Yard.

“With today's announcement, primary decision-making authority will reside with business unit leadership, supported by regional leadership and our global functions,” says Axalta chairman and CEO Robert Bryant. “Axalta's strategic review completed in March provided us with valuable insights into areas where we had the opportunity to simplify and streamline our decision-making processes. Aligning our organization more directly with our businesses will enable us to focus on our customers and better support our growth objectives in each of our markets.”

Axalta’s regional headquarters at Basel, Switzerland and Shanghai, China will remain open and regional leaders will continue to play an important role in the organization, the company says.

The reorganization will become effective 1 January 2021, and the office closures and shifts in the Philadelphia area will occur in the middle of next year.

As MRC reported earlier, in July 2017, Axalta Coating Systems completed its previously announced acquisition of the Spencer Coatings Group (UK), a leading manufacturer of high performance industrial coatings for heavy-duty equipment, general industrial, oil and gas, and glass coatings segments.

We remind that Russia's output of chemical products rose in August 2020 by 5% year on year. At the same time, production of basic chemicals increased year on year by 5.3% in the first eight months of 2020. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the January-July output. August production of benzene fell to 102,000 tonnes from 95,300 tonnes a month earlier due to scheduled shutdowns for maintenance at several producers. Overall output of this product reached 918,300 tonnes over the stated period, down by 0.9% year on year.
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SRF to establish BOPP film line in India

MOSCOW (MRC) -- The Board of Directors of SRF Ltd at its meeting held on November 04, 2020 has approved Setting up of a second BOPP Film Line & Metallizer at Indore either directly or through a wholly owned subsidiary, said Indianchemicalnews.

The existing capacity is 45,000 MTPA and the existing capacity utilization is 100% on product mix basis. 60,000 MTPA of additional capacity is proposed at an outlay of Rs. 424 crore through mix of debt and internal accruals.

The new capacity should go on stream within 20 months. The rationale for expansion is the growth of BOPP market both in India and overseas, need for ability to service the customer for the entire spectrum of BOPP products.

Recently its subsidiary SRF Europe Kft announced the successful commissioning of its new Bi-axially Oriented Polyethylene Terephthalate (BOPET) film manufacturing plant in Jaszfenyszaru, Hungary at a cost of Euro 80 million.

The company has also announced setting up of a new chloromethane facility to produce 1,00,000 tonnes per annum at Dahej, Gujarat at a projected cost of Rs. 315 crore.

As MRC reported earlier, Ufaorgsintez (UOS, BashneftпїЅs petrochemical asset) has resumed its polypropylene (PP) production after a shutdown for maintenance. The plant"s customers said Ufaorgsintez had resumed its PP output since 13 October after the shutdown for a scheduled turnaround. The outage was quite long and started on 12 September. Ufaorgsintez's overall PP production capacities are 120,000 tonnes/year.
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Shell closing Convent, Louisiana, refinery as pandemic takes toll

MOSCOW (MRC) -- Royal Dutch Shell announced it was closing its refinery in Convent, Louisiana, the largest such US facility and first on the US Gulf Coast to shut down since the coronavirus pandemic devastated worldwide demand, reported Reuters.

The shutdown will occur this month after Shell failed to find a buyer.

The refinery is the ninth in North America targeted for a shutdown or to be idled since the pandemic, which has dealt a heavy blow to fuel demand globally. The United States is the world's largest fuel consumer.

Shell said it failed to find a buyer for the 211,000-barrel-per-day refinery after announcing plans to sell it in July.

“After looking at all aspects of our business, including financial performance, we made the difficult decision to shut down the site,” Shell spokesman Curtis Smith said in an emailed statement.

Refining margins have been down substantially since the pandemic started. The gasoline refining margin is currently at USD8.79 per barrel, below the threshold where most refiners can profit.

Once the shutdown is complete, Shell will continue to try to divest the refinery, the company said. It expects to sell all but six refineries and chemical plants globally and is considering closing facilities it cannot sell, the company told investors on its quarterly earnings call this week.

"We recognize the market is not great at the moment in terms of divesting assets ... if it's not possible, we'll consider closing and shutting down. That's ultimately, the last option we'd like to pull," said chief financial officer Jessica Uhl.

The company said in 2019 it would structure its operations to match the future market for downstream products with a focus on its chemicals business.

In February, Shell sold its 156,400 bpd Martinez, California, refinery and logistics assets to PBF Energy for $960 million plus the price for oil and refined products on hand.

Shell said it will open a selective voluntary severance program to potentially create other roles for workers.

Convent's closure adds to the almost 2 MMbpd of refinery capacity globally that has been permanently shuttered globally due to the coronavirus pandemic.

Another 1.4 MMbpd is temporarily out of commission or being converted in terminal and other facilities, US refiner Phillips 66 said on its third quarter earnings call earlier this week.

Late last month PBF Energy said it will shut most refining units at its Paulsboro, New Jersey, refinery.

Elsewhere, Canada’s Come-by-Chance plant in Newfoundland and Labrador has been idled since May. HollyFrontier shut down its Cheyenne, Wyoming, refinery, Marathon Petroleum began closing refineries in Martinez, California, and Gallup, New Mexico, while Calcasieu Refining idled its Lake Charles refinery in southwest Louisiana.

Phillips 66 announced plans to shut its plant in Arroyo Grande, California, in 2023 and plans to reconfigure its San Francisco Refinery to produce renewable fuels.

It is unusual for an oil company to sell a refinery that it has already idled, in part because the value of the asset is deemed to be lower if it is not operating.

North Atlantic Refinery Limited is actively trying to sell its Come-by-Chance refinery, after a deal with Irving Oil fell through last month for undisclosed reasons.

"Refineries aren't light switches, they're extremely expensive to shut and restart," said Zachary Rogers, senior oil analyst at Rapidan Energy Group.

"The fact it's shutting down (for however long) underscores the weakness of refining economics as COVID persists," he added.

As MRC informed before, Royal Dutch Shell plc. said earlier this month that its petrochemical complex of several billion dollars in Western Pennsylvania is about 70% complete and in the process to enter service in the early 2020s. The plant’s costs are estimated to be USD6-USD10 billion, where ethane will be transformed into plastic feedstock. The facility is equipped to produce 1.5 million metric tons per year (mmty) of ethylene and 1.6 mmty of polyethylene (PE), two important constituents of plastics.

Ethylene and propylene are feedstocks for producing PE and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.

Royal Dutch Shell plc is an Anglo-Dutch multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the biggest company in the world in terms of revenue and one of the six oil and gas "supermajors". Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading.
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