2023 Global Market Outlook: Olefins

The US ethylene market will continue to be oversupplied in 2023. Exports will grow out of necessity to help maintain a balanced market. Demand will be stronger in the second half of the year versus the first half as global economies recover. 2023 ethylene production is expected to be 5% higher than 2022 as operating rates increase. Prices will continue to track with ethane cracking economics, but margins are forecast to improve in the second half of the year as demand rebounds.

The US propylene market will be volatile in 2023. By the second quarter, demand will outpace supply as LyondellBasell’s new PO/TBA unit starts up causing tight market conditions. The market will move to a more balanced position in the second half of the year with the startup of Enterprise’s second PDH unit. Prices in the first half of the year will be driven mostly by PDH economics compared to the second half of the year which will be driven by supply/demand imbalances.

Author:

Kim joined Chemical Data as Director of Olefins in January of 2019. She has over 20 years of chemical industry experience.  Most of her career has been focused on the commercial side of the business with experience in both sales and purchasing for multiple corporations. Kim heads the ethylene, propylene, and PP products for CDI’s portfolio. For Chemical Data’s MFA report, she writes the Petrochemical Feedstock section. 

In her industry career, Kim has over 8 years of experience selling polypropylene and polyethylene. She also has 12 years of experience in olefins including pipeline scheduling, market analysis, and propylene/ethylene purchasing. She has worked for CPChem, FHR, and Braskem before joining CDI. Kim graduated with honors from Virginia Tech in 2002 with a Bachelor of Science degree in Chemical Engineering and a minor in mathematics.

US ethylene exports expected to surge as region maintains competitive edge

Despite economic headwinds limiting domestic derivative demand, US ethylene producers are set to take advantage of expanded export capacity and competitive economics through the year.

The US market gained a competitive advantage in 2022 as expanded Texas port capacity led to record-setting exports.

US ethylene exports in 2022 were 85% higher in the first 10 months of the year compared with 2021, according to the ICIS Supply and Demand Database. Imports totalled just over 1m tonnes during that 2022 period.

That will give US ethylene producers an outlet as they continue to face sluggish demand at home.

Demand for both derivatives polyethylene (PE) and polyvinyl chloride (PVC) weakened in the second half of 2022, a situation that will continue into the new year.

Fears of recession and rising inflation have dampened consumption of finished goods and the economic outlook continues to be challenging.

US PVC sales have dropped and operating rates have been dialled back due to soft demand. Domestic PVC sales in the US and Canada recently dipped to the lowest level since April 2020, the start of the COVID-19 pandemic, according to data from the American Chemistry Council (ACC) and Vault Consulting.

Higher interest rates are slowing construction activity, the largest demand segment for PVC resins.

Likewise, PE operating rates are weak heading into Q1. The PE industry has pared back inventories in recent months due to reduced average operating rates.

Still, US ethylene derivative demand is expected to increase to 36.1m tonnes in 2023, up 3.3% from 2022, according to ICIS analysts, though that figure has been recently revised downward. In November, ICIS lowered a previous projection for 2023 demand by 1.6%, mainly due to a deterioration in the global economic outlook.

Supply

US ethylene enters the new year a long market amid the soft derivative demand.

That has kept the industry running in a balanced mode in which production has been matched to derivative demand so the sector does not build inventory.

Expectations are that domestic ethylene demand will not return until late Q2 at the earliest because of the economic outlook and current high inventory levels that have spread across the ethylene chain.

Prices gradually declined in 2022 beginning in Q1 due to weakening demand, cushioned by the occasional plant outage that boosted short-term prices.

Cracker margins have been running at break-even in Q4 and that will likely continue in Q1. Spot prices have generally been following ethane cracking costs.

But several units are scheduled to go down for maintenance beginning in late Q1/early Q2, which will offer margin support.

Ethane is expected to remain the favoured feedstock of crackers at least through the first part of the year. The ramp up of Shell’s new Pennsylvania cracker will also increase ethane consumption.

Ethylene is a key petrochemical feedstock, used to make polyethylene (PE), ethylene glycol (EG) and polyvinyl chloride (PVC) among other products.

Major US ethylene producers include Chevron Phillips Chemical, Dow, ExxonMobil, INEOS Olefins & Polymers, LyondellBasell and Shell Chemical.

Author:

John Donnelly is a Senior Markets Editor at ICIS with more than 30 years of experience covering the petrochemical, oil and energy industries. He has covered a variety of petrochemical markets with a current focus on ethylene, propylene and styrene.

Supply

Enterprise Products and Invista both separately brought down their propane dehydrogenation (PDH) units for maintenance in December and those units are expected to stay down until late January/mid-February.

That will draw down inventories and tighten the sector that recently has been driven by PDH economics.

Although producers may separately build supply before the maintenance begins, some material is likely to be purchased on the merchant market, supporting spot prices.

Two other factors will add support to the propylene market.

Propane prices historically rise during the winter months of January and February, driving up PDH costs. To keep those plants operating, spot prices will likely adjust to costs as margins are currently thin.

In addition, propylene supply from crackers is expected to be minimal going into 2023 as ethane is the most economic feedstock.

Flexible cracking margins have favoured ethane over heavier natural gas liquids (NGLs) cracking in Q4, and this situation is expected to continue as propane and butane costs could face pressure.

Cracker operating rates have been hovering in the high-70% range due to soft demand.

The propylene industry has been trying to balance the market with lower operating rates and lower production due to continued weak demand in the derivative markets, primarily polypropylene (PP).

PP is by far the largest propylene derivative consumer.

Polymer-grade propylene (PGP) prices have been under downward pressure since peaking in March 2022 due to the poor derivative demand.

Demand

Derivative demand is expected to stay weak at least until Q3.

Consumer spending slowed throughout the second half of the year as concerns of recession and high inflation rates cut into demand. That is expected to continue, although there are some indications that the economic outlook is not as poor as originally anticipated.

US manufacturing activity contracted for the first time in 30 months in November, while a panel of business economists put the risk of a US recession in 2023 as greater than 50%.

LyondellBasell’s new Channelview, Texas, POTBA plant is scheduled to come online at the end of Q1 and ramp up throughout the year, which will offer support to the propylene market.

Recently, ExxonMobil started up a new 450,000 tonne/year PP plant in Baton Rouge, Louisiana, while Heartland Polymers is starting a new PDH unit at its facility in Alberta, Canada.

Although this will add length to a PP market that is currently oversupplied, it will increase overall propylene demand.

Asia continues to drive most of the growth in global propylene demand, according to ICIS analysts, but consumption is likely to be lower in 2023.

China’s on-again, off-again COVID-19 restrictions have impacted demand and, although those restrictions seem to be softening, it is expected to take time for domestic demand there to fully recover.

New projects that will increase Asian propylene capacity are expected to come online in 2023.

The main outlet for propylene is as a feedstock for polypropylene (PP). Propylene is also used to produce acrylonitrile (ACN), propylene oxide (PO), a number of alcohols, cumene and acrylic acid.

Major US propylene producers include Chevron Phillips Chemical, ExxonMobil, INVISTA and Shell Chemical.

Major buyers include Arkema, Ascend Performance Materials, Braskem, Dow Chemical, INEOS, Oxea and Total.

Author:

John Donnelly is a Senior Markets Editor at ICIS with more than 30 years of experience covering the petrochemical, oil and energy industries. He has covered a variety of petrochemical markets with a current focus on ethylene, propylene and styrene.

Supply

The US enters 2023 with length but supply levels may decline to balanced due to BD outages and reduced crude C4 (CC4) output depending on demand.

European imports are set to arrive in early 2023 to help support domestic supply.

Two sites accounting for a combined 34% of US capacity are scheduled for maintenance beginning in January.

ExxonMobil is planning a 30-to-60-day turnaround at its Baytown, Texas, site (9% of US capacity).

TPC’s long-awaited maintenance at its Houston, Texas, site also will begin with estimated downtime of 50 days. The site will not be fully offline, TPC has said.

TPC expects that its capacity will increase to 10% above pre-Port Neches fire levels after it builds a vinyl acetate unit (VAU) in Q1.

BASF Total's production site in Port Arthur, Texas, has been out since mid-November, but this has not created supply problems for BD consumers, many of whom are taking minimum volumes now because of soft demand.

The site is expected to resume operations by year-end. The site supports BD production for TPC Group through a tolling agreement.

BD imports have been an important source of supply for the last two years, and it appears that will continue at least in Q1.

Imports are down year to date through October 2022 compared with the same period in 2021, indicating improved domestic production and reduced reliance on other regions.

However, 2022 import volumes are still higher than 2017, 2018 and 2019 (which at the time was a 10-year low), indicating US production capabilities have not returned to pre-pandemic levels.

Demand

BD and SBR demand are closely linked to synthetic rubber demand, particularly for tyre manufacturing.

Tyre volumes were softer than originally expected in 2022, according to the US Tire Manufacturers Association (USTMA), which translates to softer-than-expected BD and SBR demand.

The USTMA expected tyre shipments to be 1.5 percent higher than 2021 in its February forecast. It revised its growth figure higher to 2.1 percent in July but projected a very slight decline of 0.1% as of November.

Tyre volumes were softer than originally expected in 2022, according to the US Tire Manufacturers Association (USTMA), which translates to softer-than-expected BD and SBR demand.

The USTMA expected tyre shipments to be 1.5 percent higher than 2021 in its February forecast. It revised its growth figure higher to 2.1 percent in July but projected a very slight decline of 0.1% as of November.

The graph below shows the three forecasts released this year.

Replacement tyre shipment figures—particularly for passenger car and light truck tyres—weakened between the USTMA’s July and November forecasts, while original equipment strengthened.

Goodyear’s Q3 results support the forecast. The company reported a 7.0 percent decline in tyre units year on year in Q3 for the Americas with replacement units down by 10.2 percent and OE up by 14.9 percent but not recovered to pre-pandemic levels.

Replacement decline reflects a year-on-year inventory correction, Goodyear said, while stronger OE performance points to improved auto production rates.

Goodyear also noted in its Q3 results that Asian tyre imports swelled in H2 2022 after pandemic shipping constraints, adding to inventories, but are already slowing.

Looking ahead, several tyre makers including Bridgestone, Michelin and Pirelli have announced price increases for January, which could impede consumer demand as inflation continues.

These indicators suggest demand may be slow to start 2023 but is likely to be more in line with pre-pandemic patterns than the previous two years.

Prices

As shown in the above PMI graphic, prices in the overall manufacturing sector are decline and BD and SBR prices are no exception.

Bearish sentiment persists going into the new year, and slow demand could keep prices from spiking.

Author:

Amanda Hay has eight years of experience writing about and analysing US energy and petrochemical sectors. She has covered everything along the supply chain from the well-level productivity of US tight oil plays to pipeline infrastructure to the petrochemicals and refined products that make modern life possible.

Amanda splits time between analysing and assessing base oil and butadiene markets and helping to lead the ICIS Americas pricing team to produce weekly insight and pricing intelligence.

Before joining ICIS, Amanda worked for an upstream oil and gas consultancy and various Louisiana and Kansas newspapers. She has more than two decades of journalism leadership experience. Amanda also draws on extensive data-driven storytelling and visualisation experience to inform her work at ICIS.

Cracker utilisation across Europe was generally deemed to be 60-70% through the fourth quarter. There were reports of full shutdowns at one or two sites in response to market conditions but these were not confirmed.

It has been a long and tiring road, but as 2023 nears, olefins players’ are now far more comfortable with what may lie ahead. All production has been adapted and much has been done to mitigate as far as possible any potential risks.

“We have reached a low equilibrium,” said a source.

None are under the illusion that market conditions or underlying fundamentals change any time soon.

“We are in survival mode.”

Demand

Contractual volume commitments have been cut by 20-50% compared with those for 2022, according to producers.

“We will not produce one tonne more than has been committed,” is a phrase well-worn from producers and consumers alike.

“We have reduced consumption but even the consumption we expect is not certain. Everyone is putting themselves on the short side, erring on the side of caution,” said one source.

Some contracts have still to be finalised having been delayed due to the unpredictability and in some cases, contracts have not been renewed at all.

This leaves potentially a large exposure to the vagaries of the spot markets. If demand turns out to be better than expected, the need for spot tonnes may outweigh what is available.

But reduced contract obligations means consumers will have more flexibility in their decision making.

“Many [buyers] were trapped in their contracts in 2022, reducing means they have more options,” a source said.

Several players anticipate a much more liquid ethylene and propylene spot market as a result.

Essentially, January offtakes will improve versus December, but this is typical, December being a shortened working month.

Overall, though, demand levels during the first quarter are generally expected to be on a par with those seen in October and November.

Once the winter months are over, there is hope that the European economic outlook improves as the pressure on energy supply and costs, diminishes.

“I see extremely bad [in Q4] to just very bad [in Q1],” a player said.

China’s recent easing of zero-COVID protocols has given a more positive spin on the global economic outlook but with the Lunar New Year falling quite early on 22 January, limited improvements are expected until late in the quarter.

Even so, Europe’s high-cost position and higher product prices relative to the rest of world will likely continue to limit derivatives’ global competitiveness.

Imports have been gradually increasing throughout the course of 2022 on a number of derivative markets.

Another positive development is the introduction of energy price caps, which may allay fears that gas prices, and utility costs in general, do not get worse and at least reduce the price volatility seen this year.

A more stable base to plan from may give some confidence in placing orders.

Of course, this remains to be seen.

Generally, sources expect a better second half of 2023 compared with the first half.

Supply

Crackers will remain under-utilised, with run rates tailored closely to the reduced contractual offtakes.

This will leave ethylene and propylene supplies finely balanced, meaning unexpected issues and outages could have a much more immediate impact than usual - a tightening effect on prompt volumes. Production plans will have been set and it takes time for operations to be adjusted.

By the same token though, unscheduled derivative production problems could have the opposite effect, putting pressure on supply.

Operational reliability can diminish, with crackers running at below optimum rates, so the prospect of unscheduled interruptions is also running higher than usual.

The 2023 cracker maintenance schedule is fairly thin, most weighted towards the second half of the year:

SABIC’s 865,000 tonne/year ethylene cracker at Wilton in the UK is scheduled to be back online in the third quarter after a three-year hiatus.

Refinery maintenance planned for the spring at sites like Schwedt and Ingolstadt in Germany will help restrict some propylene volumes. The embargo on Russian oil shipments will also keep run rates at German sites like Schwedt and Leuna reduced, sources say.

More competitively priced US ethylene and propylene volumes will be available. 2022 saw record ethylene imports until demand started to fall away.

A planned expansion of the Enterprise terminal storage capability will open up the prospect of more, though this is not expected to be operational until 2024.

Conclusion

European ethylene and propylene demand will likely stay hand-to-mouth amid high uncertainty especially in the first half of the year.

Finely balanced production planning will mean there could be some surprise bumps in the road depending on production issues - cracker or derivative - or better than expected offtakes down the value chains.

Author:

Nel Weddle is a Senior Editor at ICIS with 30 years experience covering a variety of petrochemical markets from feedstocks to solvents to ethylene glycol, but with the last few years dedicated to covering European olefins – ethylene, propylene and butadiene.

H1 likely more difficult than H2 2022

The first half of 2023 could be very difficult for BD producers to manage if some of the more pessimistic predictions are to be believed, especially if the demand improvement comes first for ethylene and/or propylene derivatives.

Cracker operations would ramp up leaving BD producers with an abundance of the BD precursor crude C4 (CC4).

While some producers are able to undertake alternative CC4 processing, a few would be burdened by lengthy supply, potentially offloading into the export market at low prices.

It would not be the first time, that European BD has been forced to move no matter what the price.

There are early signs that consumption may not be quite as dreadful as first feared and that some consumers may have been too pessimistic in their planning - but the unpredictability of the situation means that producers will still not believe it until they see it.

The three-month rolling offtake forecasts have been “encouraging” according to some sellers. A major European consumer is expected to run at very low rates but other consumers’ nominations are said to be looking more “normal.”

Export opportunities are key to balancing some BD producers’ systems and most focus is on the US.

The US is where the opportunities have been for European volumes, rather than Asia where there has been a significant BD capacity expansion over the past two to three years.

Two planned turnarounds are due to take place in the US quite early in Q1 and some volumes for Latin American consumers as well as the US are expected to be covered from Europe.

With significant cracker cuts expected to remain in force at least through Q1, ready availability of spot volumes from Europe might be hard to find.

Some buyers already checking Europe for January and February arrivals have been surprised to find a lack of spot volumes. This may be down to the uncertainties over domestic demand levels - Will they hold up as so far forecast?

With all their own regional capacity, Asia would not normally be a hugely viable outlet for European volumes, but the uncertainty over demand means that the finalisation of term supply contracts have been delayed and similar production constraints at the cracker level have left players looking for spot volumes.

The easing of China’s zero-COVID policy has given market sentiment, at the very least, a boost even if few expect much change in local demand ahead of the Chinese Lunar New Year holiday on 22 January.

This could mean Europe sees more export demand from Asia, but more likely less competition for imports to the US. European volumes also have an advantage in the shorter lead time compared with shipments from Asia.

The outlook for Europe BD in 2023 is a little brighter than it was just a month ago. There is more of a view that perhaps we are already at the bottom.

ICIS does not expect demand to return to pre-pandemic levels until 2024 at the earliest, but sources do hope for a gradual improvement in market conditions as the year progresses.

The European market has been able to outmanoeuvre initial expectations in the recent past - even if this has been mainly down to unexpected and significant supply disruptions in the US. Players are hopeful that this will continue to be the case.

Author:

Nel Weddle is a Senior Editor at ICIS with 30 years experience covering a variety of petrochemical markets from feedstocks to solvents to ethylene glycol, but with the last few years dedicated to covering European olefins – ethylene, propylene and butadiene.

Asia H1 C2 demand-supply likely balance; output cuts across value chain

Northeast Asia’s ethylene (C2) supply and demand could be in equilibrium in the first half of 2023, as global recession risks, fears of a bumpy re-opening in China’s economy and rising Chinese domestic capacity will lead to continued output cuts across the value chain.

Ethylene producers in the region are largely cautious about making large volume commitment for 2023 term supply, after a difficult year in 2022 where high oil prices and poor end-use consumption led to significantly lower olefins margins compared with the preceding year.

But there are two buyers that will halt or reduce their purchases next year as they expand their upstream assets that currently comprise methanol-to-olefins (MTO) facilities.

Jiangsu Sailboat Petrochemical will fully cover its net ethylene deficit of around 90,000 tonnes/year through sister company Shenghong Refining and Chemical’s new cracker, which produced on-spec output in early December.

Sanjiang Fine Chemicals is expected to lower its purchases next year when its cracker starts up. The company currently has a shortfall of more than 200,000 tonnes/year on paper.

Shenghong Refining and Sanjiang’s crackers contribute to additional ethylene capacity totalling over 9m tonnes/year in Asia between the second half of 2022 and 2023, with the bulk of the developments in China.

Domestic supply in China's merchant market may see some constraints despite new supply from Shenghong Refining and Sinopec Hainan’s crackers.

This is due to reduced operation at crackers and MTO plants, as well as plans by some key sellers to shut their plants for overhaul and to increase captive consumption through downstream capacity expansion.

Shenghong Refining will supply more ethylene to Jiangsu Sailboat's downstream plants at least in the initial stages of operation, limiting the volumes the company has available for merchant sales.

Jiangsu Sailboat shut its MTO plant in the first half of December to optimise the group’s resources as Shenghong Refining’s downstream plants will come on line in stages.

There is no clear timeline yet for the start-up of Shenghong Refining’s No 2 MEG plant after the No 1 unit came on stream in early December.

Several major Chinese ethylene suppliers such as Zhenhai Refining & Chemical, Shanghai Secco and SP Olefins will shut their plants for maintenance between January and July 2023, constraining the volumes available for sale.

Operation at ethylene facilities in the broader Chinese market could remain at reduced levels owing to weak market conditions in the first half of 2023.

Production cuts at methanol-based facilities accelerated in late September/October as high feedstock methanol costs led to a wave of shutdowns.

Output is expected to remain at reduced levels prior to the Lunar New Year holidays in the second half of January, as the easing methanol costs will likely be offset by weak downstream demand.

In 2023, two major sellers SP Olefins and Fujian Gulei Petrochemical will see their combined ethylene surplus fall by more than 400,000 tonnes/year because of increased captive consumption.

SP Olefins will have a new 400,000 tonne/year vinyl chloride monomer (VCM) plant starting up in January, while Fujian Gulei is expected to begin operation at its 300,000 tonne/year ethylene vinyl acetate (EVA) unit in Q1.

Korea exports to fall; rebound for Japan

South Korea’s exports are likely to decline in 2023 after two years of brisk growth, as the uncertainty over global oil prices and the grim global economic outlook led producers to plan for lower output and sales

Two major sellers that signed annual contracts totalling more than 300,000 tonnes in 2022 have no plans to commit to term volumes for 2023 so far.

Other producers will continue to have regular exports but they prefer to keep their production nimble by offering a wider-volume range for next year’s contracts so as to have the option to lower supply in months when margins are poor.

The bulk of the production loss will be concentrated in the first half of 2023 due to scheduled outages at seven facilities, which will take out over 1m tonnes of capacity.

LG Chem’s No 2 Yeosu cracker and Hyundai Chemical’s unit will shut for at least a large part of the first half of 2023 in order to lower ethylene and derivative exports.

Several other companies are planning to bring down their operating rates for 2023 to minimum levels of 70-75% in months when margins are poor.

Companies were already running their plants at reduced levels for most of 2022, with the cuts deepening in the second half of the year.

For instance, Yeochun NCC (YNCC) has prolonged a turnaround at its No 3 cracker to February.

LG Chem shut its side cracker in Daesan this month after completing an extended turnaround at the No 1 Yeosu cracker.

Despite the widespread output cuts, Korea's outgoing shipments in January-October 2022 surged 47% from the previous year to 1.35m tonnes.

Supply was curtailed by a series of turnarounds at key exporters' facilities in the first half of the year, and widespread operating rate cuts in the latter half owing to poor export margins and slowing domestic demand.

US exports offset regional production cuts

The regional production cuts together with Europe's weak demand outlook will likely support a sustained resurgence in US-Asia trade in the first half of 2023.

Around 145,000 tonnes of ethylene were fixed for shipment to Asia between September and October, versus around 110,000 tonnes that were loaded in the first eight months of 2022.

Further supplies totalling over 100,000 tonnes were scheduled to load in November-December, putting the full-year US exports to Asia on track for a double-digit growth from last year's 297,000 tonnes.

Suppliers pivot to Asia since September after energy-related inflationary pressures led to a slowdown in Europe’s downstream activity.

Saudi Arabia’s exports, which surged in Q4, could moderate in January-February amid downstream plant restarts and an upcoming cracker turnaround.

Weak outlook for Asia prices

Based on December forecast, the average spot prices for Asia ethylene are forecast to be lower in 2023 than this year as the regional capacity expansion outpaces demand growth, according to ICIS senior analyst Amy Yu.

Asia capacity will reach nearly 100m tonnes in 2023, up by 10% year on year, while demand in the region is projected to see a slower 6% growth for the same period, Yu said.

The average spread between northeast Asia ethylene and naphtha prices are expected to increase in H1 2023, compared with H2 2022, mainly driven by the eased restrictions in China, Yu said.

Author:

Yeow Pei Lin is the deputy managing editor for Asia and Middle East at ICIS. She has been covering Asian ethylene since 2013.

Asia C3 eyes post-LNY demand, China recovery in focus

The propylene market has had its fair share of ups and down in 2022 but it seems 2023 would see a bearish C3 market on poor demand and increased supply.

Some of the highlights in 2022 included China’s zero-COVID strategy curtailing demand from the largest importer of merchant propylene in northeast Asia, trucker strikes in South Korea disrupting downstream operations and consequently upstream run rates, and lower run rates throughout most of southeast Asia on poor margins.

So, what does 2023 have in store for this embattled market?

All eyes on post-LNY demand in Q1 2023

It is generally understood that the December to early-January period typically sees quiet trade amid ongoing year-end festivities.

However, this time an additional element of volatility coincided with the traditional year-end lull as China announced the easing of COVID-19 restrictions on 7 December, which spurred a round of procurement in the market.

In the week ended 16 December, northeast Asian propylene spot prices firmed up significantly on strong downstream demand, especially from the polypropylene (PP) sector.

This was largely driven by easing COVID-19 restrictions, as PP is used to produce protective gear such as disposable masks, which is currently enjoying high demand as Chinese consumers and businesses alike stock up ahead of the Lunar New Year (LNY) period which typically sees one of the largest annual human migration events in the world.

Despite strong demand from the PP sector, the broader spot market continues to underline uncertainty as regards post-LNY demand with most buyers assuming a wait-and-see position till the new year.

While the easing of such measures should theoretically support downstream demand, market responses continue to be varied.

China’s petrochemical futures markets were mixed on 8^th December, on the morning immediately following the announcement, as market participants feared that demand would remain soft despite a further relaxation in the country’s COVID-19 curbs.

Other propylene derivative markets such as acrylic acid (AA), propylene oxide (PO), and acrylonitrile (ACN) continue to await clearer market direction, to determine their post-LNY procurement requirements as well.

Turnarounds coincide with exit from zero-covid strategy

What is next then? Beyond the immediate spring festival period, market participants also eagerly await China’s gradual exit from its zero-COVID strategy in the second quarter.

While restrictions have begun to ease in December, market participants are also waiting for market conditions to stabilize as the Chinese economy gradually finds its footing following its exit from a strategy that has sustained bearish market sentiment throughout 2022.

In addition, as ICIS analysts Amy Yu and Joey Zhou observe, this has implications for the wider Asian propylene market “because China dominates demand for Asia ethylene and propylene, [meaning] market sentiment still depends on the magnitude of China demand recovery.”

Unfortunately, Chinese demand recovery may take some time.

ICIS senior olefin analyst Paolo Scafetta also notes that “ICIS has lowered [the] Asian [propylene] consumption [forecast] in 2023. Demand will be about 75.2m tonnes, down by 3.1% from the April outlook. Although China has recently introduced softer COVID-19 restrictions, it will take time before economic growth and domestic demand fully recover.”

Demand for spot propylene will likely remain constrained in Q2 as a result. Propylene derivatives have generally seen poor margins for most of 2022, resulting in lower run rates or extended shutdowns at downstream plants.

Run rates over in the downstream PP sector, which accounts for about 60% of propylene consumption, also remain in focus.

“[Propylene] prices on average will be lower in 2023, impacted by increasing risks for the global economy and fiercer competition between propylene producers and derivatives markets, especially polypropylene (PP). The key point for propylene is the balance, or the workable spread between propylene and PP, which should be around $60-80/tonne,” said ICIS analyst Joey Zhou.

While the market’s demand outlook remains clouded on how quickly China’s economy can recover, some support can still be gleaned in Q2 on the back of turnarounds.

Of course, producers may choose to postpone, bring forward, or prolong these turnaround times to accommodate new market conditions as evidenced in the 2022 market. However, as it stands, a number of key producers are expected to undergo turnarounds in Q2.

New capacities continue to risk oversupply

However, a significant number of new propylene capacities scheduled to come online in 2023 -- with a number scheduled for H1 2023 start up -- continues to risk oversupply in the Asian, especially in the northeast Asian, spot markets.

According to Scafetta, total capacity will reach 81.7m tonnes/year in northeast Asia and 19.5m tonnes/year in southeast Asia.

Assuming no deviations from the schedule above, these new capacities constitute a significant increase in merchant supply and could offset the effect of the Q2 turnaround period and peak seasonal demand in Q2.

Author:

Julia Tan is a Markets Editor at ICIS based in Singapore. She currently covers the Asian Propylene (C3), Isopropanol (IPA), and Methyl Ethyl Ketone (MEK) markets.

Asian BD supply to stay snug, but weak derivative demand may counter-balance

Going into 2023, Asia’s butadiene (BD) market players are bracing themselves for extended periods of supply limitations, as long as operations at Asian crackers remain sub-optimal.

In 2022, many cracker operators in northeast Asia made deep and progressive cuts to operating rates, in a bid to contain losses.

Based on ICIS data, for much of 2022, margins have indeed consistently fallen into the negative zone under the dual pressures of runaway upstream costs and lacklustre derivative pricing.

The cracker rate cuts also meant that output of crude C4 was reduced, and this took a heavy toll on operations at integrated BD extraction units, leaving many such units with few options but to either load down themselves, or even shut completely on some occasions, to cope with the shortage of feedstock.

Data from ICIS Supply & Demand Database shows that average utilisation rates of BD plants in South Korea and Japan dipped to just 71% and 74% respectively in 2022, the lowest both countries have seen in the last decade.

Collectively, South Korea and Japan accounted for at least 35% of total BD nameplate production capacities in northeast Asia.

“I have had to readjust, or even cancel some term allocations, and also [scale] back spot business,” a BD producer in northeast Asia said.

And such mayhem may continue into the new year, as there are as yet no signs that Asian crackers will roll back the output cuts anytime soon, or at least not for Q1 2023, market players said.

And the anxieties and uncertainties about how deep or how long such cuts may stretch are affecting the progress of BD’s 2023 term negotiations, as suppliers are unable to finalise their basic production plans, let alone “commit on any term volumes,” a regional trader lamented.

The already frail and delicate regional supply situation may be further challenged once several scheduled BD plant maintenances in South Korea, involving cumulatively more than 400,000 tonnes/year of capacity, get underway in the April to June window, market players said.

That said, market players highlighted that anticipated capacity growth in China between late 2022-2023 – possibly amounting to over 600,000 tonnes/year worth of capacity - could help to provide some relief, “but that is if the new projects do start up according to plan,” a trader cautioned.

Synthetic rubbers and ABS have heavy applications in the automotive and appliances industries, both of which are struggling to stay afloat amid myriad geopolitical and macro-economic challenges, including the Ukraine crisis, recurring COVID-19 lockdowns in China and the global credit crunch stemming from rate hikes and inflationary pressures.

Hopes are not high too that these industries could see any imminent improvement going into 2023, given a bearish GDP growth outlook.

The International Monetary Fund (IMF) also projected, in its report published in October 2022, a 2.7% global growth forecast for 2023, which is another 0.2 percentage points lower than a prior estimate made in July 2022.

Consumers are likely to stay prudent in this climate, which could mean that they would continue to minimise spending on discretionary goods like automobiles and electronic appliances, doing little as such to lift requirements for synthetic rubbers and ABS.  This will also in turn ricochet upstream to weigh on 2023 demand for BD.

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China’s BD chain to rebalance amid capacity expansions

China’s butadiene (BD) industry chain is expected to rebalance in 2023 amid capacity expansions of BD and its derivatives, and this may result in affecting the regional Asian market as well.

In 2022, BD prices in east China started to rise from a yearly low level of yuan (CNY) 4,050/tonne DEL (delivered) on 5 January and reached a yearly high of CNY12,400/tonne DEL on 8 June, and then fluctuated downwards, ICIS data showed.

China’s BD prices in 2022

There were two reasons behind the price rise in the first half of 2022. The first being that even though BD prices were low the margins were high and higher operating rates in the downstream industries in late 2021 persisted into early 2022.

Secondly, soaring energy prices caused by the Russia-Ukraine conflicts squeezed cracking margins and lowered crackers’ run rates, subsequently reducing supply at home and abroad.

However, in the second half of 2022 supply additions from new plants and coronavirus pandemic-related muted end-user demand weighed on domestic BD prices.

With the export arbitrage window opening, China exported some BD in the first half of 2022.

The import arbitrage window opened in September-October due to sluggish overseas demand in the second half of 2022, leading to some import influx and replenishing supply in the domestic market.

China’s BD imports and exports in 2022

The south-to-east China and east-to-north China arbitrage window remained open for long in 2022.

In 2023, stronger downstream demand in north China will attract continual influx from east China.

China’s BD capacity is expected to increase by about 600,000 tonnes from late 2022 to 2023.

PetroChina and Sinopec will have a number of units in maintenance in 2023, with some turnarounds to last one to two months, which will reduce market supply by about 150,000 tonnes during the period, according to ICIS’ preliminary statistics.

Overall, domestic downstream demand for BD will rise by 9.76% in 2023, with the overall consumption estimated at around 4.59m tonnes, according to the ICIS Supply and Demand Database.

Some BD suppliers and downstream users were being more cautious about discounts in 2023 contract negotiations in view of the fast downstream capacity additions.

Supply increases of traditional derivatives styrene butadiene rubber (SBR) and polybutadiene rubber (PBR) may intensify competition.

Rubber demand from tyre replacement will be the main driving force as more travel activities are projected in 2023.

Meanwhile, this will gradually lower China’s import dependency on imported adiponitrile.

Participants will eye start-ups and production ramp-up of new BD and its derivatives capacities in 2023, especially that of derivatives.

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