2017 brings a mixed bag of fortune for chemical commodities
By Chemicals Team
Polyethylene and Polypropylene (PE and PP)
- North America: Several new ethane crackers and downstream PE plants are expected to come on-stream in 2017. However, the possibility of new PE capacity weighing down on the PE prices are low in 2017, as nearly 40-50 percent of the production from the new PE plants would be earmarked for exports. The North American PE prices are expected to increase by 6-8 percent on a Y-o-Y basis in 2017, primarily due to the anticipated uptrend in crude oil prices during the year.
With several crackers and PDH units coming online, increased propylene production and ample inventories, propylene supply might weigh down on PP prices despite no additions in PP. The PP prices are likely to decrease by 3-4 percent in 2017 compared to 2016.
- Europe: A weak Euro currency might open up an opportunity for producers to export their product into Asian or African market. The expected increase in crude oil prices are expected to increase the prices by 2-4 percent for PE and 10-12 percent for PP from the present price levels.
- Russia: Major companies in Russia are seeking out government subsidies for chemical project development in the coming years. Prices are likely to recover by 2-5 percent on a Y-o-Y for PE and by 6-8percent Q-o-Q for PP. The price rise can be attributed to increase in upstream prices.
- North East Asia: Demand for PE and PP is estimated to slow down prior to Lunar New year. The expected plant start-ups in 2017 would increase the supply in the region. With the expected rise in upstream cost, the overall PE prices are expected to increase by 2-5percent during 2017.
Sudden decrease in PP prices during November has opened up an arbitrage window from Korea to cater in USA market. Sharp growth in production activities and overall output is estimated to put an upward push in its demand in China. It is expected to drive Korean traders to keep prices considerably lower than its genuine potential in the first half of 2017. However, the overall average for 2017 is likely to increase by 9-10percent compared to 2016 levels due to the rise in crude oil prices.
- Middle East: The supply of PE is expected to increase on the back of new plant start-ups. Exports to China are expected to come down due to arrival of new plants in the region. Demand in the region is expected to be stable as a result of political uncertainties in Iraq and Turkey and this will keep the prices stable at the 2016 levels.
- Demand of PP from the export avenues of Middle East is expected to come down in 2017. Exports to China are expected to come down due to arrival of new plants in the region. As a result, Middle East are estimated to keep their prices at a lower level then the global market to secure more volumes.
- Demand for Engineered resins such as ABS, PC and Nylon are expected to improve in the U.S. on account of the shift in some automobiles production back home from regions such as South America. The newly inaugurated Trump administration may impose hefty import tax on automobiles manufactured in Latin America and elsewhere.
- Automobile companies such as Ford, Chrysler and Toyota have recalled some of their investment plans in South America and announced expansions in the U.S. With this, automobile production is expected to witness a stronger outlook as 2017 progresses.
- Post the Brexit event, as per analysts and market participants, the infrastructure, construction, and agro sectors are expected to face subdued demand for the year due to delay in allocation of funds to the UK from EU. With this, resins such as PVC, PC etc that go into these sectors could have a lower market share in Europe compared to their counterpart as 2017 settles in.
- Europe will be losing 1-2 MMT/year of production capacity in technological conversion, while about 1 MMT/year capacity would be in the conversion process for the next 8-10 months.
- Bans on PVC in many applications other than construction industry are likely to hinder demand for chlorine unless Europe finds suitable international markets to place their material.
- Sandwiched between these pincers, caustic soda prices are expected to increase by 16-17percent Y-o-Y in Europe
- Another low cost natural soda ash producer is expected to join the soda ash market. U.S. to face competition for its exports to Asian regions.
- By Aug 2017, CINER group is expected to put up a 2.5 MMT/year natural soda ash capacity under its subsidiary Kazan Soda Elektrik in Turkey. Asia which is an importer of soda ash can look at this as an alternate option for imports rather than U.S.
- With the planned capacity additions in Europe, imports are expected to decrease in the Europe market. Russia is expected to become largest exporter to Europe during 2017 and the prices are expected to remain competitive with Asian prices due to excess crude production in the Russia market
- Around 20000 bbl/day of capacity additions are planned in China, which is expected to reduce the country’s import dependency by 2017. Domestic prices are expected to decrease by 5-10 percent in comparison with 2016 prices.
Supply demand dynamics:
a. The global glycol ethers market (e-series and p-series) in North America and Europe is expected to remain well balanced in 2017.
b. Sadara’s (JV between Dow and Saudi Aramco) capacity addition of 2,00,000 MTPA of butyl glycol ethers (e-series glycol ethers) is expected to come online and ramp up to full production in 2017. This new plant is expected to bridge the supply demand gap and cater to the rising downstream demand in Asia and the Middle East. It will also reduce Asia’s import dependency on North America and Europe in 2017.
c. There will be maximum demand from the Asian Pacific region with a CAGR of 4.5 percent with increasing demand from Paints & Coatings and the Homecare industry. Downstream demand in North America and Europe is expected to flatten out after the post-recession recovery phase in 2015-16.
- Most of the glycol ether plants are located in EU countries like France, Germany and Belgium. Brexit could lead to higher glycol ether prices in Europe in 2017 as the GBP is expected to depreciate against the Euro and the possibility of increase in road tariffs.
Impact on price and availability:
- No major supply issues are expected in 2017. Prices are expected to show an increasing trend especially in Q2 and Q3 2017, which is the peak construction period.
Linear Alkyl Benzene Sulfonate
Supply demand dynamics:
a. The global installed capacity of LAS (Captive + Merchant) is around 5.9 million metric tonnes and is sufficient enough to meet the current demand levels of LAS
b. Asia is the largest consumer of LAS, which accounts for more than 50 percent of global demand in 2016 which is still expected to grow by 5 to 6percent due to the increase in per capita consumption of detergents in developing regions such as China and India.
c. Several capacity additions are happening in Middle East which are aimed at the Asian market. Some of the key capacity additions are from Riyadh Oil Factory, Entekhab Industrial Group and Farabi Petrochemical Co
d. As 98 percent of LAB is converted to LAS, these capacity additions are going to increase the supply scenario in Asia and Middle East region. As India has already filed an anti-dumping duties against Middle East imports these capacity addition may also trigger an over supplied scenario in the market
Impact on price and availability:
- The LAS prices are expected to see a downtrend in 2017 due to the decline in crude oil prices and in anticipation of an oversupplied market.
- Acrylic acid demand is expected to grow at a CAGR of about 4.5-5.0 percent Y-o-Y during 2017, mainly driven by the demand from automobile, adhesive and SAP industries.
- Demand from surface coating is anticipated to remain moderate during 2017-2018 and witness an improvement during spring/summer season
- Wanzhou Petrochemical is expected to bring online its 160,000 MT/Year acrylic acid plant in China by 2017. This capacity addition is expected to increase APAC’s acrylic acid capacity to about 4.6 Million MT in 2017 and also increase the supply availability of acrylic acid in China
- Increasing per capita consumption, disposable income and low penetration rate of diapers in China, India and other Asian countries will be the key growth drivers of acrylic acid.
- Also, housing starts will be one of the key macro-economic indicators, as acrylic acid is widely used in interior and exterior coatings.
Impact on Price:
- Acrylic acid market witnessed oversupplied conditions, which pushed the suppliers to decrease their operating rates towards Q4 2016 to about 40-45 percent, especially in China and SE Asia. This coupled with the prolonged plant shutdown by BASF and increase in feedstock prices resulted in 15 percent rise in Q-o-Q acrylic acid prices in Asia during Q4 2016.
- It is expected that the acrylic acid prices will increase during 2017 as compared to 2016 owing to the projected rise in feedstock prices and anticipated improvement in demand from SAP and automobile industries.
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