Weaker demand for crude oil takes toll on tankers, US refiners

MOSCOW (MRC) -- US refiners are scaling back on hiring ships for longer periods to save on costs in another sign of uncertainty over when global oil demand will return to pre-COVID levels, reported Reuters with reference to shipping and trade sources.

The global rollout of coronavirus vaccines and the expectation that government-offered stimulus packages will boost the world economy has raised expectations of a recovery in oil consumption. But fuel demand remains sluggish, keeping oil refiners under pressure and looking for ways to limit further losses.

The International Energy Agency, for example, does not expect oil demand to catch up with supply until about the third quarter.

US bookings for tankers hired on longer-term contracts, known as time charters, have dropped in recent weeks, as this usually means paying for longer hire costs, the sources said.

"It is tough taking a time charter now as it will lose money for the next few months and is hard to justify," one shipping source said.

Earnings for three-year and five-year time charters have also dropped from last year's highs, a trend which is weighing on profits for tanker owners.

"2021 is bound to become a bad year for oil product tankers – more so, as the option to manage bits and pieces of your risk in the time charter market is slim,” said Peter Sand, chief shipping analyst with trade association BIMCO.

Sand added that there were more time charters concluded in 2020 than in the two previous years. This was partly because tankers were booked for storage as oil demand plummeted.

One US refining executive said it did not plan to go back to chartering long-term vessels in the future to cut costs.

"The last thing you need is to get stuck with several millions of dollars worth of unused vessels for the year. We have had several cases of that," the US executive said.

US refiners were also hit by the cold conditions in Texas in January, which triggered a drop in refinery throughput, leaving fewer refiners seeking vessels for shipments and temporarily cut overall refined product exports. US refined product exports have fallen in five of the last six weeks, based on EIA figures.

As MRC informed before, the largest US refinery, Motiva Enterprises’ 607,000 barrel-per-day Port Arthur, Texas, plant, returned to normal operations. The refinery was shut on Feb. 15 when freezing temperatures, rarely seen on the US Gulf Coast, knocked out steam supply. Motiva began restarting the refinery on Feb. 24.

Motiva Chemicals has also resumed operations at its mixed-feed cracker in Port Arthur, USA. The process of restart of this cracker with the capacity of 635,000 mt/year of ethylene and 340,000 mt/year of propylene began on 27 February, 2021, and finished late last week. The cracker wa shut along with the refinery at the same site on 14 February, 2021, because of the deep freeze.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
MRC

1. European Council endorses EU sustainable chemicals strategy

MOSCOW (MRC) -- The European Council has endorsed the EU's chemicals strategy for sustainability, adopted by the EU Commission in October 2020, reported Chemweek. The council has directed the commission to implement the actions laid down in the strategy, including targeted amendments to streamline EU chemicals legislation, substituting and minimizing substances of concern, and phasing out the most harmful chemicals for non-essential societal uses. The chemicals strategy is an essential part of the EU Green Deal and its zero-pollution ambition, as well as a key component in the EU recovery plan from the COVID-19 crisis.

MRC

MOSCOW (MRC) -- Wacker Chemie reports net profit for 2020 of EUR202.3 million (USD241.2 million), swinging from a net loss of EUR629.6 million, despite a 4.8% decline in sales to EUR4.69 billion due to the negative impact of the COVID-19 pandemic on volumes and prices, reported Chemweek.

The loss in 2019, as noted in a financial update provided by the company in February, was mainly the result of an impairment charge of EUR760.0 million that Wacker recognized related to its polysilicon production facilities that year, it says. EBITDA declined 14.9% year on year to €666.3 million, while EBIT of EUR262.8 million compared with a loss of EUR536.3 million in 2019.

The company’s silicones business reported a 9% decline in sales, to EUR2.24 billion, due to lower prices for standard silicones, reduced volumes, and negative currency effects. EBITDA decreased 19%, to EUR387.8 million. In 2021, the company expects the business’ sales to climb by a mid-single-digit percentage, and EBITDA is projected to be slightly higher than 2020, with higher raw material prices slowing earnings, it says.

Wacker’s polymers division posted a slight, 1%, decline in sales to EUR1.30 billion, due to price declines and negative exchange-rate effects. EBITDA was 39% higher, at EUR270.5 million, with positive effects coming from improvements in the cost of goods sold and a decline in raw material prices, the company says. In 2021, Wacker expects the division’s sales to go up by a mid-single-digit percentage, and EBITDA to be markedly lower due to substantially higher raw material prices.

The biosolutions business recorded sales that were 1% higher at EUR246.1 million, due mainly to volume growth in biopharmaceuticals and cyclodextrins. EBITDA increased 23%, to EUR38.1 million because of volume growth and an improved cost structure, Wacker says. In 2021, the business’ sales are likely to grow by a low-double-digit percentage, and EBITDA is expected to be slightly higher than 2020, the company says.

Wacker’s polysilicon division saw sales increase 2%, to EUR792.2 million, due to volume growth and a better product mix. EBITDA, however, dropped 92% to EUR4.7 million. The fall in EBITDA is mainly because special income of EUR112.5 million in insurance compensation booked for the Charleston incident was included in 2019, the company says. In 2021, Wacker forecasts that the division’s sales will increase by a mid-single-digit percentage, driven by an improved product mix and slightly higher volumes. It also anticipates that average prices for polysilicon will not decrease in 2021. EBITDA is expected to be clearly positive and markedly above the 2020 figure, it says.

“Although we are suitably cautious about the coronavirus situation, we have entered 2021 with optimism,” says Rudolf Staudigl, CEO of Wacker. During the first two months of 2021, the company’s business “remained on a dynamic trajectory,” the company says. Demand is robust across all business divisions, with group sales and EBITDA both clearly higher than last year, it says.

For the first quarter of 2021, Wacker expects to post group sales of almost EUR1.3 billion, compared to EUR1.2 billion in the first quarter of 2020. EBITDA is likely to be substantially above last year’s level, benefiting mainly from strong demand for polysilicon and construction-sector products, and from generally lower production costs, the company says.

For the full year 2021, the company says that despite the ongoing risks and negative impacts associated with the pandemic it expects group sales to climb by a mid-single-digit percentage, primarily due to volume growth. EBITDA is likely to be 10-20% higher than in 2020, with savings in personnel and non-personnel costs achieved under the company’s ongoing efficiency programs expected to have a favorable effect on earnings, it says. Markedly higher raw material costs and negative currency effects will slow EBITDA by more than €100 million, it adds. Net earnings are expected to be substantially above the 2020 figure.

Non-personnel cost savings improved 2020 income by more than EUR50 million, but efficiency-related restructuring expenses of EUR48.9 million lowered earnings, Wacker says. In 2021, the company expects to see non-personnel cost savings of over EUR100 million, as well as a noticeable reduction in personnel costs. It intends to achieve annual savings of about EUR250 million from the end of 2022 through its ongoing efficiency program, reduction of non-personnel costs, and the cutting of around 1,200 jobs in Wacker’s administrative departments and in the divisions’ non-operational functions, according to Staudigl.

As MRC reported earlier, Wacker Chemie will cut 1,000 jobs by the end of 2022 to save costs and prepare for a “harsher competitive environment”. Munich-based chemical group Wacker Chemie AG has begun its “Shaping the Future” restructuring plan by announcing 1,000 jobs will be lost by the end of 2022 as it aims to save EUR250 million per year. The company announced around 800 posts will be culled at German sites with administrative staff and people working in indirect and non-operational roles those at risk.

We remind that Wacker Chemie operates a 90 ktpa ethylene-vinyl-acetate (EVA) compounding plant at the Ulsan site, consisting of two lines. The second line with a capacity of 40,000 tons of products per year was launched in 2013.

According to MRC's DataScope report, January EVA imports to Russia rose only by 0,07% year on year to 3,084 tonnes from 3,087 tonnes a year earlier, and overall imports of this grade of ethylene copolymer into the Russian Federation dropped in January-December 2020 by 3,41% year on year to 38,170 tonnes (39,520 tonnes in 2019).

Wacker Chemie AG is a worldwide operating company in the chemical business, founded 1914. The company is controlled by the Wacker-family holding more than 50 percent of the shares. The corporation is operating more than 25 production sites in Europe, Asia, and the Americas. The product range includes silicone rubbers, polymer products like ethylene vinyl acetate redispersible polymer powder, chemical materials, polysilicon and wafers for semiconductor industry.
MRC

MOSCOW (MRC) -- The impact of the COVID-19 pandemic on olefins markets around the world has seen demand for some feedstocks suffer while others have surged, with the collapse in oil prices also causing normally feedstock-advantaged regions such as the Middle East to stall or potentially cancel new projects, according to Chemweek with reference to IHS Markit experts at the World Petrochemical Conference (WPC) 2021, being held in an online format.

COVID cut into US liquefied petroleum gas (LPG) production and saw US export growth take a short-term pause, according to Walt Hart, vice president/global natural gas liquids at IHS Markit, speaking in a panel discussion on olefins, feedstocks, and derivatives. LPG production should begin to grow again, however, with US exports to remain the largest in the world, he says. LPG demand “remained relatively strong throughout the COVID crisis,” he said.

There’s still “room to grow” in China, but US LPG exports are now reaching into SE Asia and occasionally into India, he noted. With Saudi Arabia having cut oil production in recent years to support oil prices, Middle East LPG exports have gradually declined. “This is changing trade dynamics and the relationship between Japan’s spot prices and Middle East prices, and waterborne freight rates have essentially disintegrated over the last couple of years. The US is going to have more and more influence on the benchmark prices in Asia and Middle East going forward,” Hart said.

Some parts of the industry prospered and did “very well” because of the pandemic, due to constraints in movement and the lack of service activity occurring in the global economy, according to Matthew Thoelke, executive director/olefins and derivatives EAME at IHS Markit. Others suffered, with low-cost producers in North America and the Middle East seeing their cost advantage disappear during the second quarter of 2020, he said. “It was a very challenging year, particularly the second and third quarters, but as we moved into the fourth quarter we saw a real resurgence in demand. We saw the catching up of inventory that was required to refill the supply chain. That was anticipating a much stronger 2021, and so far this year that has continued,” he said. For the Middle East this has meant “not just higher margins for the industry generally, but also significant cost advantages coming back,” he added.

The industry was already “heading into a downturn, but that downturn has probably been a year shorter at the front end as a result of the pandemic,” according to Thoelke. The back end of the downturn is also “probably going to be shortened as we see the impact of delayed projects,” he said. “Specifically, we see several projects in the Middle East that are likely to be delayed. We see projects elsewhere in the world that will probably see the same fate. The reality is that the downturn is maybe going to be a little bit shorter, but maybe it’s also going to be a little bit deeper than we initially expected.”

Thoelke described the availability of capital and a willingness to put capital into assets as “really critical,” with that dynamic “generally very weak in the Middle East when you see low oil prices.” Most of the petchems projects under consideration currently are being pushed back by national oil companies (NOCs) because oil prices are such a key factor in driving the cash flows of the NOCs looking to invest, he said.

“The pandemic really came at a very bad time, in the engineering and pre-engineering stages, heading towards investment decisions. Suddenly you had this huge push towards minimizing capital expenditure, effectively pushing those projects later,” Thoelke said. Several of those projects potentially won’t now happen, he said. “There’s at least six or seven projects in the Gulf Cooperation Council (GCC) area, in the medium term - some ethane-based, some mixed feed, some heavier feed - and several of those may disappear or will definitely be later. We’re now looking at more like the end of the 2020s or 2030 before those projects can be realized,” he said.

Another factor is the challenge of “making liquid cracking work in the Middle East,” Thoelke said. “Fundamentally it’s best to be close to where the demand is because co-product valuations are higher as you’re moving low-cost product, crude oil, liquid feeds, or naphtha, rather than several different chemical products. The industry in the Middle East has really struggled to make it work in terms of taking those liquid feedstocks,” he said. Producers in the Middle East, however, are “shifting a little bit of their focus towards joint venturing and partnering with companies in those big demand centers in China and India,” he noted.

For methanol, the key longer-term takeaway is that demand growth is forecast to be slightly lower than GDP for the first time in many years, according to Mike Nash, vice president/global syngas at IHS Markit. There are only two methanol-to-olefins (MTO) units under construction, one due to start up this year, with another in 2022, he said.

“China’s E10 policy, however uncertain, looks as if it will result in lower methanol demand into direct blending, and methyl tert-butyl ether (MTBE). The relatively low crude oil price is likely to lead to poorer methanol economics, and therefore lower demand, into fuels applications,” he said. The impact of lower methanol demand growth will mean the likely closure of some older, less efficient capacity in China, while there will also like be “postponement or cancellation of methanol projects, particularly those Chinese-funded ones in the US, where cheap shale gas was being monetized into methanol to be shipped to east China to feed MTO production,” Nash said.

The potential future demand route for methanol as a marine fuel is more of a long-term opportunity, he said. “It’s not going to become material in the next five years, or possibly even the next 10 years. It’s going to be 10-15 years plus,” he said.

For butadiene, the impact of the pandemic on the market means a prolonged recovery, according to Bill Hyde, executive director/olefins and elastomers at IHS Markit. “It’s going to take years for butadiene demand globally to recover to the 2019 level, and as it does that, ethylene demand will continue to grow. So crude C4 supply will lengthen,” he said.

IHS Markit sees a longer crude C4 and butadiene market. “As we get out into the later years of the forecast, those that are looking at investing in ethylene crackers really need to think long and hard about where their crude C4 is going to go, and what they’re going to do with it, because there won’t always be a home for it in the butadiene market,” said Hyde.

We remind that, as MRC wrote before, in March, 2021, South Korea's petrochemical maker Hanwha Total shut down its LPG-fed steam cracker in Daesan from March for 45 days to expand its ethylene production capacity by about half to 450,000 mt/year from 300,000 mt/year currently. Once the expansion works are completed, the propylene capacity of LPG-fed steam cracker would be also raised to 130,000 tons/year from the current 80,000 tonnes of propylene.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 241,030 tonnes in January 2021 versus 217,890 tonnes a year earlier. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, PP shipments to the Russian market reached 141,870 tonnes in January 2021 versus 123,520 tonnes a year earlier. Supply of homopolymer PP and PP block copolymers increased.
MRC

MOSCOW (MRC) -- Ukraine's polypropylene (PP) imports to the Ukrainian market totalled 19,300 tonnes in the first two months of 2021, down by 5% year on year. Shipments of all grades of propylene polymers decreased with a few exceptions, according to a MRC's DataScope report.

February PP imports to Ukraine grew to 10,500 tonnes from 8,800 tonnes a month earlier, local companies increased their purchasing of propylene homopolymers (homopolymer PP) from Azerbaijan and Russia. Overall imports of propylene polymers reached 19,300 tonnes in January-February 2021, compared to 20,400 tonnes a year earlier.

The supply structure by PP grades looked the following way over the stated period.

Last month's imports of homopolymer PP to the Ukrainian market rose due to higher imports from Azerbaijan and Russia, totalling 8,800 tonnes, whereas this figure was 6,800 tonnes in January. Thus, overall homopolymer PP imports reached 15,600 tonnes in the first two months of 2021, up by 5% year on year.

Last month's imports of block propylene copolymers (PP block copolymers) were 600 tonnes, compared to 900 tonnes in January. 1,600 tonnes of PP block copolymers were imported over the state period, which is comparable to the last year's figure.

February imports of statistical propylene copolymers (PP random copolymer) dropped to 800 tonnes from 900 tonnes a month earlier. Overall imports of PP random copolymer reached 1,700 tonnes in the first two months of 2021 versus 2,000 tonnes a year earlier.

Overall imports of other propylene copolymers were less than 300 tonnes over the stated period.

MRC