PE market is in the extended downcycle of low operating rates and margins

PE market is in the extended downcycle of low operating rates and margins

The polyethylene (PE) and polypropylene (PP) markets are both in the midst of an extended downcycle of low operating rates and margins sparked by massive overbuilding and delayed rationalization, according to industry experts who spoke at the World Petrochemical Conference by S&P Global, as per Chemweek.

“By our estimation, [the polyethylene] industry went into a downcycle in the second half of 2022, and the conditions that drove us there persist,” said Jesse Tijerina, head of global polyolefins at S&P Global Commodity Insights. “It’s this oversupply that we’ve been talking about … and then also [the] somewhat weaker global economic demand that we experienced in ‘23 and expect it to go into ‘24 as well. Much like in ethylene, there is additional excess capacity still planned in the next three years, which complicates the matter from a recovery perspective. Without action, these conditions will continue to put pressure on profitability, and we think this could go into 2027 or beyond.”

PE capacity additions outpaced demand growth by 13.5 million metric tons (MMt) over the last four years, Tijerina noted, pulling the global operating rate down from 87% in 2020 to 79% in 2023. Under current demand projections, this excess capacity will not be absorbed for another two or three years; meanwhile, more new capacity is slated for start-up, so the operating rate will remain mired near 80% through 2027.

China is the major contributor to the excess, accounting for 53% of the new capacity anticipated in 2020–27, while the rest of Asia accounts for just 11%. However, demand in China, which averaged nearly 6.5% over the last 10 years, is forecast to slow to just over 4% during the next 10 years. Demand will grow by nearly 8% in South Asia and nearly 6% in Southeast Asia.

The supply/demand imbalance has weighed heavily on PE margins, and regional divergence has been compounded by high crude oil pricing. Tijerina noted that integrated cash margins for naphtha-based production of high-density polyethylene (HDPE) in Asia fell deep into negative territory during 2022–23, and they are forecast to remain negative until 2030. In contrast, margins for ethane-based producers in the US are forecast to narrow through 2026, but they will remain positive near $500 per metric ton, and by 2030, they will bounce back to around $1,000 per metric ton.

With the current downcycle for the PE market already nearly two years long, a V-shaped recovery in profitability is no longer an option, and a U-shaped recovery seems increasingly unlikely, said Tijerina. “We’re likely into an L-shape recovery, and the real question is, how long is this going to take? When we look at our supply fundamentals … it suggests that meaningful action has to be taken now… Delaying projects closer to the upcycle or canceling them altogether is an action that would definitely help. And then, of course, the much-talked-about rationalization as well.”

Several issues affect the pace of rationalization. “Number one, owners generally have an emotional attachment to their assets, and this, in a way, is [a] headwind to rationalization,” Tijerina observed. “Most companies feel that they can weather the storm and that others will not be able to.” By the same token, rationalization is easier following an acquisition or a takeover. “Generally, this is because the new owner is not as emotionally attached to the assets,” he said. “Even if the owners are inclined to rationalize, there’s often resistance from labor unions or local governments.”

Tijerina reminded the WPC audience that while the duration of the downcycle in PE is difficult to predict, it will ultimately end. “Polyethylene will continue to enjoy healthy growth by our estimations [equivalent to] six to eight world-scale polyethylene units per year.”

We remind, Shantou Mingca Packaging Co Ltd and ExxonMobil Asia Pacific Research & Development Co., Ltd (ExxonMobil) announced an innovative double bubble Polyethylene-based Shrink Film solution, the next generation of Polyolefin Shrink Film, created using ultra-low density Exceed XP performance polyethylene. PEF can be used to package products in a variety of shapes, such as electronics, household and personal care products, medicines, food, books and magazines, plastic utensils, and toys.

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Symrise-led JV to manufacture personal care ingredients in India

Symrise-led JV to manufacture personal care ingredients in India

Symrise has entered into a joint venture dedicated to manufacturing personal care ingredients in India with Andhra Pradesh-based pharmaceutical actives maker Virchow Group, said Indianchemicalnews.

The new company, Vizag Care Ingredients, is based in Visakhapatnam, including one local chemical manufacturing site. Production is slated to begin by the end of June.

Symrise's global sales organization will carry out promotion and sales activities of the products manufactured by the joint venture, which is majority owned by the German firm.

The Visakhapatnam facility is Symrise’s first chemical manufacturing site outside Europe and the Americas.

Vizag Care Ingredients plans to expand the site in the coming years to facilitate the production of world-scale volume of beauty ingredients, serving the APAC region and beyond.

Symrise believes the move will strengthen its leading position as a supplier of high-quality personal care solutions, including multifunctional product protection ingredients, high-performance actives & botanicals, and next-generation UV filters.

“Our entire customer base will benefit from the proximity, efficiency, and sustainability advantages that come with a supply of our market-leading cosmetic ingredients portfolio out of India,” said Symrise Scent & Care president Dr. Joern Andreas.

"Virchow Group and Symrise share the same values, so this partnership perfectly fits,” he added.

“Together, we will manufacture modern ingredients in India that drive innovation, safety, and efficacy for our global customers. In addition, we seek to make an impact in the local community of Visakhapatnam by continuously investing and creating jobs.”

We remind, Saudi chemical manufacturer Sabic signed a memorandum of understanding with Pashupati Group, an India-based mechanical and chemical recycler of PET and polyolefins, said the company. The companies will explore, evaluate, and develop local business opportunities for recycling waste plastics in India, including the potential development of a pyrolysis plant to provide Sabic with feedstock for its circular polymers.

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Kazakhstan expects nearly USD2 bln from Russian oil transit to China

Kazakhstan expects nearly USD2 bln from Russian oil transit to China

The Majilis or lower house of Kazakhstan's parliament has ratified the protocol amending the agreement between Kazakhstan and Russia on transporting Russian oil through Kazakhstan to China dated December 24, 2013, as per Interfax.

The protocol, signed in St. Petersburg on June 16, 2023, extends Rosneft's agreement with CNPC for 100 million tonnes of oil over 10 years. The pumping tariff is set at USD15 per tonne, with a USD2.1 tariff on the Tuymazy-Omsk-Novosibirsk-2 (TON-2) pipeline section. This facilitates long-term oil transportation through main pipelines from Russia to China via Kazakhstan (Tuymazy-Omsk-Novosibirsk-2 (TON-2) and Priirtyshsk-Atasu- Alashankou) until January 1, 2034.

"The agreement's extension will guarantee the oil supply to the Pavlodar Petrochemical Plant via the Omsk-Pavlodar pipeline. From 2024 to 2033. The projected revenue from transporting Russian oil through Kazakhstan to China is estimated at USD1.71 billion for both sections, with no associated risks," Kazakh Energy Minister Almasadam Satkaliyev said.

Including replacement profits, revenue is estimated at USD1.851 billion.

The previous 10-year agreement, valid until January 1, 2024, saw 90.9 million tonnes of Russian oil transit through Kazakhstan to China, generating USD1.327 billion in revenue.

We remind, Russia announced additional voluntary cuts in oil supply mainly in the form of production cuts rather than exports, as it faced curtailed refining capacity as well as stricter sanctions. Russia has declared plans to cut its oil output and exports by an additional 471,000 bpd in April-June in coordination with some OPEC+ participating countries. While the world's second-largest oil exporter has been reducing 500,000 bpd in exports of crude oil and oil products in the first quarter, it has decided to scale down export limits in the second quarter and focus on production curbs instead.

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Sri Lanka minister says Sinopec to start work on refinery by June

Sri Lanka minister says Sinopec to start work on refinery by June

The world's largest refiner, China's Sinopec, plans to start work on a refinery in Sri Lanka by June, the power minister said, advancing a project earmarked as the biggest investment in the crisis-hit island nation, said Hydrocarbonprocessing.

Sri Lanka is looking to attract investment in the battle to stabilize its economy and return to growth following a financial crisis caused by a severe shortfall of dollars in 2022 that led the economy to contract 2.3% last year.

Officials of Sinopec Overseas Investment Holding are visiting Colombo for talks with Sri Lankan authorities. "The officials indicated that the management of Sinopec has decided to double the capacity of the refinery from the original proposal," the minister, Kanchana Wijesekera, wrote on social media platform X.

"They intend to sign the agreements for the project and commence work by June 2024." Sri Lanka's cabinet approved the project in November, an investment that Wijesekera has earlier tagged at USD4.5 billion.

China is Sri Lanka's biggest two-way lender, with its companies building highways, sea and air ports and other infrastructure on the island off India's southern coast. The investment by Sinopec, one of the largest producers of petrochemicals, is part of an effort to expand beyond China, in which it has acquired refinery assets in Saudi Arabia and petrochemicals production in Russia.

Iran built Sri Lanka's only refinery at Sapugaskanda in the western region in 1969. It can process 38,000 barrels of crude a day.

We remind, Sinopec Engineering (Group) Co. Ltd. has reported CNY/RMB 34.6 billion ($4.8 billion) in revenue from petrochemical contracts for 2023, up 9.5 percent against 2022. The company, majority-owned by the state’s China Petrochemical Corp. (Sinopec Group), attributed the growth to domestic projects including an ethylene production facility of Exxon Mobil Corp., an ethylene co-venture between Sinopec and Ineos, and the second phase of Sinopec’s Zhenhai Base refining and chemical complex.

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SABIC Fujian Petrochemicals advances major ethylene project with Lummus technologies and services

SABIC Fujian Petrochemicals advances major ethylene project with Lummus technologies and services

Lummus Technology, a global provider of process technologies and value-driven energy solutions, announced that SABIC Fujian Petrochemical Co., Ltd.'s grassroots complex in Fujian Province, China, will leverage Lummus' ethylene and co-monomer technologies, said Hydrocarbonprocessing.

SABIC Fujian Petrochemicals Co., Ltd. is a joint venture between SABIC Industrial Investment Company (wholly owned by SABIC) and Fujian Fuhua Gulei Petrochemical Co., Ltd. (holding by Fujian Energy and Petrochemical Group). Formed in 2022, SABIC Fujian Petrochemicals Co., Ltd. is a 51:49 joint venture, with SABIC being the majority owner. On January 22, 2024, SABIC announced the final investment decision for the SABIC Fujian Petrochemical Complex (Sino-Saudi Gulei Ethylene Complex Project) and plans to begin construction this year and expects to complete construction in 2026. The complex is the largest single investment joint venture project with foreign investment in Fujian Province to date.

"We commend and congratulate SABIC Fujian Petrochemicals Co., Ltd. for making this critical investment decision and look forward to helping them reach many more milestones," said Leon de Bruyn, President and Chief Executive Officer of Lummus Technology. "This project highlights Lummus' unique capability to integrate our solutions during customers' investment and operating cycles, lowering costs, reducing energy consumption, enhancing reliability and yield, and optimizing operations."

Lummus' scope for the project includes technology license and basic design engineering for up to 1800 KTA ethylene/1020 KTA propylene MFSC unit, a 60 KTA butene-1 unit and BTX products. Lummus will also supply its proprietary heater equipment and CDModules.

Lummus is the world's leading licensor of ethylene technology, having licensed more than 200 ethylene plants around the world, accounting for approximately 45 percent of global ethylene capacity. Lummus has also completed over 250 ethylene grassroots, revamp and expansion design projects, more than any competing technology licensor.

We remind, Saudi chemical manufacturer Sabic signed a memorandum of understanding with Pashupati Group, an India-based mechanical and chemical recycler of PET and polyolefins. The companies will explore, evaluate, and develop local business opportunities for recycling waste plastics in India, including the potential development of a pyrolysis plant to provide Sabic with feedstock for its circular polymers.

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