ASIA OUTLOOK 2016

OLEFINS AND POLYMERS

PETROCHEMICAL SPECIAL REPORT
JANUARY 2016

www.platts.com/petrochemicals

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

FOREWORD
Increased competition among olefins producers trying to hold
on to or expand market share amid the increasing oversupply
of polymers in China is widely expected in the first half of
2016. The new game changers methanol-to-olefins and
propane dehydrogenation plants are facing a fierce rebound
in competitiveness from naphtha-based olefins producers.
Even coal-to-olefins is facing renewed competitiveness and
will continue to have no competitive edge over naphtha-based
petrochemicals production in H1 2016 if crude oil prices do not
rebound significantly. Many of these MTO and PDH plants were
planned and construction launched when global crude prices
were in the three digits. Now the plunge in crude and naphtha
prices is proving deeper and more prolonged than many had
anticipated, fiercer competition for market share is expected
in H1 2016. A possible solution that some market sources see is
increased polyethylene and polypropylene exports out of Asia,
with producers hoping to move their surpluses to non-Asian
markets such as Africa and Latin America. In Chinas case,
its PP excess could be increasingly redirected even closer to
home as well, such as to Southeast Asia. Demand is expected
to remain bearish as long as crude does not rebound firmly and
the direction of Chinas economy remains unclear. In addition,
many end-users across Asia are already faced with higher
costs for dollar-denominated raw materials as their respective
currencies have weakened. What is the outlook for olefins and
polyolefins in Asia in H1 2016? This, and more, can be found in
this first-half outlook for 2016 from Platts. Clement Choo,
clement.choo@platts.com

ETHYLENENAPHTHA PRICE SPREADS WIDENS ON TIGHT SUPPLY

1000
800

($/mt)

($/mt)

Spread (left)
Ethylene CFR Northeast Asia (right)
Naphtha CFR Japan (right)

2500
2000

600

1500

400

1000

200

500

2013

2014

2015

Source: Platts

TURNAROUND SCHEDULE FOR SOUTH KOREAS NAPHTHA-FED

STEAM CRACKERS IN 2016 (000 mt/year)
Company
KPIC
YNCC (1)
YNCC (2)
YNCC (3)
SK Innovation(1)
SK Innovation(2)
LG Chem
LG Chem
Lotte Chem
Lotte Chem
Samsung Total

E/P capacity
470/230
860/485
580/270
470/230
200/140
660/360
900/450
1,000/550
1,000/500
1,000/500
1,000/600

Location
Ulsan
Yeochun
Yeochun
Yeochun
Ulsan
Ulsan
Daesan
Yeochun
Yeochun
Daesan
Daesan

Timing
No turnaround
No turnaround
Mar 15-Apr 15
No turnaround
No turnaround
Mid-Sep, one month
No turnaround
No turnaround
Apr, 30 days
No turnaround
No turnaround

E=ethylene; P=propylene
Source: Company and market sources

But the decline in prices has been smaller compared with that of
feedstock naphtha amid supply tightness. Platts data showed
that the Asian ethylene-naphtha spread was the widest in
almost nine years.

OLEFINS

The spread between ethylene and naphtha was $862/mt on

April 28, the widest since September 18, 2006, when it was
$886.88/mt, Platts data showed.

ASIAN ETHYLENE TO REMAIN TIGHT IN

2016 AMID STABLE DEMAND

The typical breakeven spread is $300-$350/mt. The Asian

ethylene-naphtha spread has averaged $605.84/mt so far in
2015, compared with $563.77/mt in 2014, according to Platts data.

Asian production will fall as older production units in Japan and

Taiwan are scrapped and downstream derivative plants start up
tapping into existing supply.
The Asian ethylene market is likely to remain tight in 2016 as
demand stays stable in line with the startup of a new derivatives
unit, while no major steam cracker expansions are planned in
the region, market sources said.
In 2015, Asian ethylene prices were lower than in 2014.
According to Platts data, CFR Northeast Asia ethylene has
averaged $1,102/mt in 2015 compared with $1,425.69/mt in the
whole of 2014.
The Asian ethylene market has been under pressure from
macroeconomic factors such as the economic slowdown
in China. The Caixin/Markit purchasing managers index
for September was at a 6 1/2-year low of 47.2, compared
with 47.3 in August. In October, the index rose to 48.3 but
was still below the 50 points level, which represents a
contraction.

Copyright 2016 by Platts, McGraw Hill Financial

Asian steam cracker operators enjoyed so much profit in 2015,

said a market source.
Japans Mitsubishi Chemical Holdings in November increased
its profit forecast to Yen 248 billion for fiscal 2015-2016 (April to
March), up 9% from the previous guidance in May. Sumitomo
Chemical also forecast a record operating profit of Yen 155
billion for fiscal 2015-2016.
In 2016, the current trend of high ethylene prices and good
margins are expected to continue.
There is some new ethylene requirements in 2016 from new
derivatives plants. On the other hand, no major ethylene
expansions are planned for 2016, a market source said.
In Taiwan, the USI Group plans to startup two new ethylene vinyl
acetate/low density polyethylene plants in Kaohsiung in the first
quarter. Both plants will have the capacity to produce 45,000
mt/year of EVA/LDPE.

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

The [number of] cracker turnarounds in 2016 is fewer than in

2015. But the Asian ethylene supply will likely remain tight in
2016, said another market source.

PROPYLENE PRICES SINK ON GLUT, FRESH PRODUCTION ($/mt)

Three steam crackers are due to be shut in 2016 in South

Korea compared with four in 2015. South Koreas total ethylene
production capacity is 8.14 million mt/year. The three crackers
to be shut in 2016 account for 2.24 million mt/year or 28% of the
total capacity. In 2015, about 46% of the total capacity was shut
for maintenance.

1200

Some steam crackers in the region will be shut permanently

such as Taiwanese CPCs 500,000 mt/year facility in
Kaohsiung that was mothballed at the end of 2015. Japans
Asahi Kasei will shut its 470,000 mt/year steam cracker in
Mizushima in February.

Source: Platts

Meanwhile, initial offers from term contract ethylene suppliers

for 2016 were $20-30/mt higher from 2015.
We have been suffering from negative margins (in 2015). We
cannot accept such a price increase, said an ethylene end-user
in Northeast Asia.
Most ethylene derivatives producers suffered from negative
margins in 2015 due to high ethylene costs. The Asian PEethylene spread narrowed to minus $10/mt on December 2, with
the typical breakeven spread at plus $150/mt. It is the first time
since January 21 in 2014 that the spread turned negative.
Term contract talks were likely to stretch to January, the
sources said. Ethylene suppliers want to maximize their profits
before major steam cracker expansions using shale gas in
2018, said another ethylene end-user.
Ethylene surplus in the US is expected to widen to 5.5 million mt in
2018, compared with 233,000 mt in 2015, according to METI data.
Ethylene surplus in 2016 is expected to remain flat from the 2015
estimate of 201,000 mt. Fumiko Dobashi, fumiko.dobashi@
platts.com; edited by E Shailaja Nair, shailaja.nair@platts.com
INCREASED PROPYLENE CAPACITY IN
ASIA TO WEIGH ON 2016 MARKET
An oversupply situation that emerged late 2015 is expected to
continue into 2016 as fresh production hits the market.
Asian propylene is likely to face supply pressures in 2016, with a
new plant expected to come on stream in the first half, adding to
the existing oversupply from a slew of new projects that started
up in late 2015.
SK Advanced, a joint venture between SK Gas and Advanced
Petrochemical, plans to start trial runs at its new 600,000 mt/
year propane dehydrogenation plant at Ulsan in South Korea in
the first half of 2016. Some sources felt that the plant may start
up in the later part of the first quarter, and with one noting that
propane prices tend to be higher in winter.

Copyright 2016 by Platts, McGraw Hill Financial

1600
1400

1000
800

Propylene CFR China

Propylene FOB Korea

600
400

2013

2014

2015

TURNAROUND SCHEDULE FOR JAPANS NAPHTHA-FED STEAM

CRACKERS IN 2016 (000 mt/year)
Company
Idemitsu
Idemitsu
Keiyo Ethylene
Maruzen Petchem
Mitsubishi Chem
Mitsubishi Chem
Mitsubishi Chem
Mitsui Chem
Mitsui Chem
JX Nippon
Asahi Kasei
Showa Denko
Sumitomo Chem
Tonen Chem
Tosoh

E/P capacity
Location
Timing
374/224
Chiba
No turnaround
623/450
Tokuyama
Early Sep to late Oct
700/400
Chiba
No turnaround
550/230
Chiba
May-Jun, 50-60 days
495/320
Mizushima
No turnaround
375/170
Kashima (1)
Scrapped in 2014
526/260
Kashima (2)
Early May, one month
600/331
Chiba
No turnaround
500/280
Sakai
No turnaround
404/260
Kawasaki
End-July, 60 days
470/300
Mizushima
To be scrapped in Feb
695/425
Oita
No turnaround
416/288
Chiba
Scrapped in early 2015
515/300
Kawasaki
No turnaround
527/270 Yokkaichi Mar-Apr

E=ethylene; P=propylene
Source: Company and market sources

This new plant comes on top of the new propylene production

capacities in 2015, at around 2 million mt/year. In China, Oriental
Energy started up a 600,000 mt/year PDH unit at Zhangjiagang
and Yantai Wanhua Chemical a 750,000 mt/year PDH plant in
Shandong, while in South Korea, Hyosung Corp. brought on
stream a 300,000 mt/year PDH plant in Ulsan and YNCC started
up an olefins conversion unit in Yeosu that can produce 140,000
mt/year of propylene.
Most of the new plants came online in the second half of 2015,
leading to weaker prices, which depressed production margins
and in turn prompted PDH and OCU operators to cut run rates.
Japans Mitsui Chemicals shut its 140,000 mt/year Osaka OCU
in October and South Koreas YNCC its 140,000 mt/year OCU in
November.
A source at a producer in Japan said earlier that OCU operators
run rates could face further pressure in 2016, if firm ethylene
prices squeeze margins. Lower production at OCU plants may
see OCU operators having less impact on the propylene balance
in 2016, he said.
Its not easy to [see an improvement in] OCU margins (in 2016)
because ethylene prices are strong, said a source at a producer
in South Korea.
Japans Asahi Kasei plans to permanently shut its Mizushima
steam cracker in February 2016, which can make 470,000 mt/

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

year of ethylene and 300,000 mt/year of propylene. An end-user

in China said this would tighten the ethylene market, potentially
resulting in higher run rates at other steam crackers and adding
length to the propylene market.
A South Korea-based trader noted that exports from the
country may decrease in 2016, should OCU run rates stay low.
Furthermore, there would be increased downstream demand
for propylene in South Korea, as Kumho P&B Chemicals starts
up its new No. 4 solvents plant at Yeosu in May or June 2016.
The plant will have a production capacity of 300,000 mt/year of
phenol and 180,000 mt/year of acetone.
A source at a producer in Japan added that this expectation of
lower South Korean propylene exports has contributed to relatively
stable term contract negotiations for 2016, instead of the deeper
discounts that were initially expected due to the oversupply. A
source at a producer in South Korea said there was also a chance
that the term contract alpha could be higher for 2016 than in 2015.
However, an end-user in China felt that it remains to be seen
what the operation rate of Kumhos new downstream plant will
be, and if that would contribute significantly to downstream
consumption of propylene.
Planned turnarounds to tighten supply
While the overall market is expected to be long, supply may
tighten in the middle of the first half of 2016, and in September,
as plant turnarounds peak.
Five steam crackers and two fluid catalytic crackers will be
shut over March to June for turnarounds. The peak of the
turnarounds where four plants with a combined production
capacity of around 1.4 million mt/year of propylene shut will
happen over March to April.
South Koreas Yeochun NCC plans to shut its No. 2 naphthafed steam cracker in Yeosu over March 15-April 15 for annual
maintenance, Platts had reported. The No. 2 unit can produce
270,000 mt/year of propylene. Lotte Chemical plans to shut
its Yeosu naphtha-fed steam cracker, which can produce
480,000 mt/year of propylene, in April 2016 for 30 days of
scheduled maintenance.
In Japan, Tosoh plans to shut its Yokkaichi steam cracker,
which can produce 316,000 mt/year of propylene, for a 30- to
40-day turnaround in March 2016. Mitsubishi Chemical plans
to shut its No. 2 naphtha-fed steam cracker at Kashima, which
can produce 260,000 mt/year of propylene, from early May for
around a month for annual maintenance.
Maruzen Petrochemical plans to shut its naphtha-fed steam
cracker in Chiba, which can produce 230,000 mt/year of
propylene, from May or June for 50-60 days. Idemitsu plans
to shut it is Hokkaido fluid catalytic cracker, which can make
60,000 mt/year of propylene, over June to July.
Taiwans Formosa plans to shut its No. 2 residue fluid catalytic
cracker for a turnaround over March to April. It has a nameplate

Copyright 2016 by Platts, McGraw Hill Financial

production capacity of 350,000 mt/year of propylene, and is

able to produce, at its maximum, 375,000 mt/year of propylene.
In the second half of 2016, five steam crackers and one olefins
conversion unit are slated to shut. The peak of the turnarounds,
where three plants will shut in September, will see around 1.3
million mt/year of propylene production capacity shut.
Japanese refiner JX Nippon Oil and Energy plans to shut its
Kawasaki naphtha-fed steam cracker, which can make 273,000
mt/year of propylene, at the end of July for about 60 days of
scheduled maintenance. The company will also shut its olefins
conversion unit, which can make 140,000 mt/year of propylene,
at the same location.
Also in Japan, Idemitsu Kosan plans to shut its naphtha-fed
steam cracker in Tokuyama from early September 2016 for
annual maintenance. It has capacity to produce 450,000 mt/
year of propylene.
Taiwans Formosa Petrochemical Corp. plans to shut its No. 2
naphtha-fed steam cracker, which can make 515,000 mt/year
of propylene, at Mailiao from August 1 to September 22, 2016,
for scheduled maintenance, while CPC plans to shut its No.
4 naphtha-fed steam cracker at Linyuan, which can produce
193,000 mt/year of propylene, on December 12 for maintenance.
South Koreas SK Energy plans to shut its Ulsan No. 2
naphtha-fed steam cracker, which can make 360,000 mt/
year of propylene, from the middle of September 2016 for
one month of annual maintenance. Ng Baoying, bao.ying.
ng@platts.com; edited by Geetha Narayanasamy, geetha.
narayanasamy@platts.com
ASIAN METHANOL PRICES HINGE ON CHINAS
EXPANDING MTO PLANTS IN 2016
Key factors to track in 2016 include weak crude hampering
methanol demand from MTO plants, propylene and
polypropylene pulling on the profitability of MTO while methanol
supply may increase from the Americas.
A surge in methanol-to-olefins capacity in China is set to
become the major driver and swing factor for methanol spot
prices in Asia in 2016.
Although methanol demand from new MTO capacity in China
is expected to grow in 2016, the scale of it will largely depend
on profit margins at MTO plants. The margins will influence
their operating rates, which will in turn affect methanol spot
demand and prices.
If methanol demand from MTO producers firms, methanol
spot prices may increase fast, but if demand falls, spot
prices may sink.
Unlike other derivatives of methanol, this may become more
evident in the case of MTO due to the massive scale of new MTO

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

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SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

capacity in China and the rapid growth it has been showing just
in the past two years, while growth in MTO capacity is expected
to balloon further in 2016.

HDPE FILM HIGHLY COMPETITIVE

400

($/mt)

($/mt)
Spread (left)
HDPE Film CFR FE Asia (right)
PE costs from spot methanol (right)

1700
1500

This comes as the crude oil price slump which started in

mid-2014 from three-digit levels falling to around $40/b in early
December shows no sign of ending soon.

300
200

1300

MTO capacity to grow but plunging naphtha poses threat

The scale of Chinas MTO olefins capacity is huge, and it is set to
triple from around 1 million mt/year at the end of 2014 to close to
3 million mt/year at the end of 2015. It is forecast to rise past 6
million mt/year by end-2016, according to industry sources.

100

1100

This means methanol demand would potentially increase from 3

million mt/year in 2014 to 9 million mt/year at end-2015 and to 18
million mt/year at end-2016.
However, this all depends on the operating rates of these MTO
plants, which is tightly knit with the competitiveness again
naphtha-based olefins producers in Asia. And this could be the
major hurdle: construction of many of these MTO plants started
in an era of relatively high crude prices.
Weak crude typically leads to lower naphtha costs. Naphtha is
the major feedstock for olefins production in Asia and therefore
competes with MTO plants in this field. Outside of China,
methanol is largely produced from natural gas, and inside China
more than 90% of it is made from coal.
With rising methanol demand in China for MTO in 2015, methanol
prices have been lagging the fall in crude and naphtha prices.
For instance, methanol on a CFR China basis has fallen 32.6%
since June 2, 2014, to $230/mt on December 9, while naphtha
prices on a C+F Japan basis has fallen 54.7% during the same
period to $428/mt.

0
Jun-14 Aug-14

Oct-14

Dec-14 Feb-15

Apr-15

900
Jun-15 Aug-15 Oct-15

Source: Platts

polypropylene are not considered profitable at all for MTO

producers at the moment.
Profitability at MTO is not seen as improving any time soon
during 2016 and could deteriorate further with more MTO
capacity being brought online, potentially meaning more
methanol demand and support for methanol prices.
This firm demand in China for methanol is reflected in rising
2015 imports. In January-October, China imported 4.542 million
mt of methanol, up 4.8% year on year, according to China
Customs Statistics Information Center data. Chinas methanol
imports could keep rising in 2016, along with global supply.
The US is having a construction boom of methanol plants as
a result of the surge in shale gas production. This increasing
output will shake up trade flows as the US is a major net
importer of methanol at the moment, importing over 6 million
mt in 2014, according to US Department of Commerce data.
The largest suppliers to the US are typically Trinidad and Tobago,
which supplied close to 4 million mt in 2014, and Venezuela with
close to 1.3 million mt.

Therefore, a key concern for MTO producers in 2016 will be if

their demand is too strong, they will easily drive up the methanol
spot prices, or at least provide a floor, and with that they push
down their own profitability as their major competitors in Asia
have seen their feedstock costs dropping faster, sources said.

This means cargoes from South America and the Caribbean

would have to find homes elsewhere likely in Europe and Asia
displacing Middle Eastern cargoes in the European market,
according to industry sources in mid-November. This could
result in more Middle Eastern cargoes being diverted to Asia.

Although ethylene and polyethylene are still considered

profitable for MTO producers, propylene and its derivative

If not from imports, China could see more methanol available

if demand destruction takes place in other major end-users hit
by falling energy prices, such as direct gasoline blending and
dimethyl ether. DME can be used as a fuel on its own, but in
China it is mostly used for blending into LPG, which is attractive
to do when LPG prices are relatively high compared to methanol.
The share of gasoline blending in methanol demand is around
20% and for DME around 15%-20%.

ETHYLENE FROM METHANOL CHEAPER THAN SPOT PRICE

500

($/mt)

($/mt)
Spread (left)
Ethylene CFR NE Asia (right)
C2 costs from spot methanol (right)

400

1800
1600

300

1400

200

1200

100

1000

0
-100
Jun-14 Aug-14

800
Oct-14

Dec-14 Feb-15

Apr-15

600
Jun-15 Aug-15 Oct-15

Source: Platts

Copyright 2016 by Platts, McGraw Hill Financial

Methanol supply in China could also rise as a result of higher

operating rates. While it has massive methanol capacity of 55
million mt/year the largest in the world operating rates have
been relatively low, at around 50% in recent years. But any rate
increases will depend on Chinas domestic methanol prices,
economic growth, competitiveness of domestic production and
ultimately demand from the planned MTO plants.

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

Chinas methanol output could also rise from producers that use
natural gas as a feedstock.
The government cut gas prices for industrial users by Yuan
0.70/cu m from November 20. This could support production of
methanol from natural gas, which had turned unattractive as a
feedstock due to relatively high prices previously. The tariff cut
would be equivalent to a fall in feedstock costs of Yuan 647.50/
mt of methanol produced.
One trader estimated that around 5 million mt/year of natural
gas-based methanol production capacity could be brought
online because of the lower feedstock costs.
Decisive year for MTO footprint
This year is likely going to be very important for MTO not only
because massive new capacities will be brought online.
First, will MTO be able to continue operations in an environment
where naphtha prices have regained their competitiveness?
This renewed competition from naphtha-based producers may
put downward pressure on petrochemical prices in Asia, hitting
the profitability of these MTO plants in China even further.
Although it is difficult to predict the direction of crude oil prices,
although many market sources do not think it will rebound to
$100/b any time soon.
Another point of concern for MTO is whether economic growth
and polymers demand in China lags the projected growth due to
a global or domestic economic slowdown.
PROPYLENE TURNS UNATTRACTIVE FOR MTO
400

($/mt)

($/mt) 1600
Spread (left)
Propylene CFR China (right)
C3 costs from MTO (right)

200

1300
1000

700

-200
-400
Jun-14 Aug-14

Oct-14

Dec-14 Feb-15

Apr-15

400
Jun-15 Aug-15 Oct-15

Source: Platts

PP RAFFIA FALLS INTO LOSSES FOR MTO

300

($/mt)

($/mt)
Spread (left)
PP Raffia CFR FE Asia (right)
PP costs from spot methanol (right)

200

1700
1500

100

1300

1100
900

-100
-200
Jun-14 Aug-14

Oct-14

Dec-14 Feb-15

Apr-15

700
Jun-15 Aug-15 Oct-15

Source: Platts

Copyright 2016 by Platts, McGraw Hill Financial

Many producers are moving ahead with these MTO projects

because they expect demand to continue rising for both PE
and PP in China in the years ahead. And even with the increase
in polymers capacity in China, demand for polymers is set to
skyrocket further and set to double for both PE and PP between
2014 and 2025, according to Platts Petrochemical Analytics.
But what if economic growth stutters and derails further
growth plans? The country could be easily swept into a supply
glut of polymers, and which could pressure the profitability of
the MTO plants.
As a result, methanol prices could become tightly linked with
olefins and polyolefins prices during 2016, and swing up and
down depending on the profit margins that these MTO plants
can reap. Anton Ferkov, anton.ferkov@platts.com; edited by
Meghan Gordon, meghan.gordon@platts.com

POLYMERS
ASIAN PES RECOVERY IN 2016 LIES IN NEW,
REGULAR TRADE FLOWS OUTSIDE OF REGION
Among the factors to look out for are: Bearish economies hitting
PE demand, oversupply with new Middle East plants and Chinese
CTO projects and naphtha feedstock being more attractive in a
low oil price environment.
Polyethylene will not escape the bleak outlook hanging over
other petrochemical products in Asia, but there is a glimmer of
hope as PE starts seeing new and regular trade flows to markets
outside of the region.
Oversupply amid weaker demand, the catchphrase in todays
Asian petrochemical market, has set expectations for a
slowdown in demand growth to 3%-5% for 2016 compared with
2015, according to Middle East producers. This downtrend could
be curbed, if the excess supply reaches out to healthier demand
markets in Africa and Latin America, specifically Peru and
Colombia, sources said.
A number of producers in Asia said they plan to continue
redirecting cargoes into African markets. This movement had
started a few years ago, with sellers wanting to diversify their
customer base, but was never a regular trade flow. That is
set to change with excess PE supply in Asia as well as lower
freight rates amid weaker bunker fuel prices. In addition, the
PE deficit in Africa is expected to reach 2.1 million mt by 2025,
according to Platts Petrochemical Analytics, amid the increased
use of plastics. This market used to be supplied by some local
production in South Africa as well as from Egypt and Nigeria.
The Asia to Latin America PE flow, especially South Americas
west coast, is another new movement that would help soak
up Asias excess barrels. A few Asian producers said they
would continue to move material into Latin America, which

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

was reacting to Asias more competitive prices and the lower

freight rates.
Some Chinese bonded warehouse re-exports will continue to be
offloaded in Vietnam and Thailand due to proximity, according
to traders.

Meanwhile, not much excess supply is expected to head into

storage as inventory levels are expected to stay low in a risk
adverse uncertain macroeconomic situation.

Demand hit
Asian demand for PE is not seen to be recovering yet, as
the downstream sectors automobiles, construction and
packaging were decreasing operating rates at their plants
due an economic slowdown in China, the biggest PE market,
sources said.

[As a result,] I expect the market to be more volatile as no one

is keeping a cargo buffer, a major trader said.

The decline in the value of Asian currencies versus the dollar

has also weighed heavily on the regions PE market, as most are
importers of PE.
Most of PEs applications in film, personal care containers
and raffia are consumer led have already been hit by weaker
economic growth.
Low cash liquidity amid the current economic climate is another
factor impacting buying.
Excess supply
The PE market in the Asian region is oversupplied due to new
Chinese and Middle East PE capacities coming online.

Chinas PE production is expected to grow by over 30% year on

year in 2016, if all projects that aim to derive PE from coal and
methanol start up as originally planned, according to Platts
Petrochemical Analytics. Coal to PE projects currently total
around 4.6 million mt/year.
As a result, the overall PE deficit in China is expected to
decrease from 6.7 million mt in 2015 to 6.2 million mt in 2016,
according to Platts, once the additional capacity comes online,
with assumptions of around 60%-80% operating rates.
From the Middle East, additional output is also expected Saudi
Arabian Sadara Chemicals 350,000 mt/year LDPE plant and
C6 MLLDPE PRICE DIFFERENTIAL OVER C4 LLDPE NARROWS
1400
1300

(price differential, $/mt)

LLDPE Metallocene C6 CFR S Asia weekly ( left)
C4 LLDPE CFR FE Asia (left)
C6 mLLDPE- C4 LLDPE (right)

100
80

1200

60

1100

40

1000

30-Sep

14-Oct

28-Oct

11-Nov

25-Nov

Source: Platts

Copyright 2016 by Platts, McGraw Hill Financial

09-Dec

Trade liquidity of specialized grades to get a boost

The switch to more specialized PE grades such as from
butene-based LLDPE to metallocene based-LLDPE, or mLLDPE,
is likely to continue into 2016, as prices for the better quality
mLLDPE has come off, industry sources said. Metallocene PE
has better processing qualities and tensile strength.
The drop in mLLDPE prices has encouraged end-users to seek
more of that specialty grade plastic resin, boosting profits for
mLLDPE producers as well as market share, as it is not easy
for end-users to easily switch from mLLDPE to butene-based
LLDPE again.
Coal-to-polyolefin plants all produce butene-based PE.

PE from coal-to-polyolefin plants will flood the market in 2016,

sources said. The devalued yuan helped to push down the
production cost for these plants.

($/mt)

two LLDPE lines totaling 750,000 mt/year that will start up by

end-2016; and Kuwaiti Equates debottlenecking of an additional
175,000 mt/year of PE at its plant by mid-2016. These additional
supply, most of it bound to Asia, may turn some Asian countries
into exporters, sources said.

20

More plastic converters might use hexene-grade, or C6,

metallocene linear low density PE, in their resin formula, instead
of C4-LLDPE, since they will be getting a higher quality polymer.
C6-mLLDPE is around $100/mt more expensive than normal
butene-based LLDPE, but this spread is narrower than the
typical C6/C4 spread of $150/mt.
Naphtha feedstock a bigger draw
Most sources expect integrated naphtha-based PE production
to remain profitable in 2016, as the PE-naphtha price spread
averaging around $700/mt in 2015 so far has firmly stayed
above the breakeven production cost of around $550/mt.
Unintegrated producers may, however, resort to forced closures
or a drop in operating rates, sources said.
Alternatively, unintegrated producers may mull cutting PE
production and selling off feedstock ethylene if both continue to
stay at similar prices, sources added.
Naphtha-based feedstock continues to be competitive in
a low oil price environment in Asia. Although polyolefins
manufactured from the coal route did rise, the full capacity
increase will not be fully felt, with some of those plants lowering
run rates or undertaking maintenance due to market weakness,
China-based sources said.
India-Singapore FTA to boost flow of
specialty grades to india
PE shipments of specialty grades from Singapore to India are
expected to pick up in the long term following a free trade
agreement that took effect December 1, sources said.

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

PETROCHEMICAL
MARKET ANALYSIS
Understanding complex petrochemical markets
is crucial in gaining a competitive advantage.
The global petrochemical
feedstock slate is becoming
more diverse. As producers
strive for a cost advantage,
low-cost feedstocks
are fueling investments
decisions.

Platts analysis of the global petrochemical markets allows you to dig deeper into:
Supply and demand
Understand which regions have
a supply surplus and which have
a deficit and the impact new
capacity additions will have.
Long- and short-term coverage
See how regional and global
capacity will change over the next
12 months, or throughout the next
10 years.

Variable cost curve

See where each petrochemical
facility sits on the variable cost
curve and how cumulative capacity
additions are affecting regional
production costs.
Coal-to-Olefins projects
See new planned projects, together
with the location, capacity and
on-track status for each.

Global trade flows

Track how global trade flows are
changing and understand what this
means for each regional market.

Platts analysis of the petrochemical markets is delivered through outlook reports,

datasheets, visualization tools and direct access to our analysts.
For more information on Platts Petrochemical Analytics, visit: www.platts.com/petrochemicals

www.platts.com

Copyright 2016 by Platts, McGraw Hill Financial

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

India doesnt produce some specialty grades like mLLDPE, but

sources in both markets do not expect this to have much impact
initially, because the duty imposed was small and demand has
been poor.
Singapores PE shipments to India were previously hit by a 0.6%
duty of their CFR value, but this was removed December 1,
according to an official statement from Indias finance ministry.
One Indian producer said he will continue to watch for signs,
since the FTA could increase competition with Singapore
producers. Our local selling price may decrease, he
said. Heng Hui, hui.heng@platts.com; edited by Geetha
Narayanasamy, geetha.narayanasamy@platts.com

New capacity tipping China towards PP exports in 2016

China has already started exports of commodity grade PP
homopolymers in 2015, said Chinese traders and Southeast
Asian end-users. And exports are on track to top 150,000 mt in
2015, up 25% from 2014, according to industry data.
An analysis of Chinas trade data for January-October exports
suggests a more nuanced picture, as half of the volume
comprises re-exports from bonded warehouses.
About a quarter of the volume is identified as
domestically produced homopolymers, according to a
trader, where Sinopecs naphtha-based PP supply makes
up 50% of the volume.
But recently, CTO-linked PP has been offered to Southeast Asia
in small quantities, according to multiple industry sources.

NEW CHINESE CAPACITY TO OUTPACE

ASIAN PP DEMAND GROWTH IN 2016
China is likely to add 3 million mt/year capacity by end-2016 while
Southeast Asia will see higher supply from China. Meanwhile,
Indias H1 2016 market is expected to be weak on ample domestic
supply and imports.
Asias polypropylene market is expected to be weak during the
first half of 2016, with projected demand growth outpaced by
new capacity coming on stream in China.
Total PP demand in Asia is forecast to rise by nearly 6%, or
2 million, from 2015 to 36.7 million mt in 2016, with China
accounting for nearly 60% of demand, according to Platts
Petrochemical Analytics.
But China is also rapidly building up production capacity, with
up to 3 million mt/year of new capacity expected to come on
stream in 2016 outpacing the expected growth in demand
throughout Asia.
Coal-to-olefins linked PP is expected to make up more than half
of this new capacity in China, with the rest from methanol-toolefins and propane dehydrogenation projects.

PP raffia is already exported to Vietnam, I expect (in 2016) it

will also go to ASEAN [Association of Southeast Asian Nations]
countries, especially Thailand, due to its free trade agreement
[with China], said a trader after attending a recent strategy
presentation conducted by a CTO company.
A opportunity for exports typically opens whenever Chinese
domestic prices fall to Yuan 6,300/mt or below, equivalent to
less than $800/mt on an import parity basis, noted another
trader, adding that his firm offered CTO material into Vietnam at
$910/mt in late November.
A source from a major Japanese trading company also
concurred, noting his firm has been testing the waters by buying
500 mt each month from a Chinese MTO producer and selling to
Vietnam and Latin America.
Conversely, the rapid expansion of domestic supply has slowed
down imports into China. The country imported 263,935 mt
of PP homopolymer in October, down 7% compared with the
same month in 2014, according to latest data from the General
Administration of Customs.
CHINA POLYPROPYLENE PLANT STARTUPS, 2015-2016

Of the planned 3 million mt/year capacity, 1 million mt/year is

expected to start up in Q2 2016. They are: China Coal Mengda
New Energys 300,000 mt/year CTO-linked PP plant in Inner
Mongolias Ordos, Shenhua Groups 300,000 mt/year CTO plant
in Xinjiang, and Ningbo Fortunes PDH-linked PP plant in Ningbo.

Plant Name
Type
Scheduled

Started 2015
Shandong Shenda Chemical PP, Tengzhou
MTO
Jan-15
Zhangjiagang Yangtze Petrochemical PP, Zhangjiagang PDH
May-15
Shenhua Group PP, Yulin
CTO
Dec-15
Total

200,000
400,000
300,000
900,000

Another 2 million mt/year of new PP capacity is scheduled for

startup in H2 2016, notably Sinopecs Zhong Tian He Chuang
Energy, a CTO-linked plant with 700,000 mt/year of capacity
in Ordos, although delays may happen depending on market
conditions, sources said.

H1 2016 highly likely

China Coal Mengda New Energy PP, Ordos
CTO
Apr-16
Shenhua Xinjiang Coal Liquefaction, Xinjiang
CTO
May-16
Ningbo Fortune PP, Ningbo
PDH
May-16
Total

300,000
300,000
400,000
1,000,000

H2 2016
MTO
mid-2016
Fund Energy PP, Changzhou
Qinghai Damei Coal PP, Xining City
CTO
mid-2016
SINOPEC Zhong Tian He Chuang Energy PP 1, Ordos
CTO
H2 2016
SINOPEC Zhong Tian He Chuang Energy PP 2, Ordos
CTO
H2 2016
Jiutai Energy PP, Ordos
MTO
H2 2016
Fujian Meide Petrochemical, Fujian
PDH
H2 2016
Total

300,000
400,000
350,000
350,000
350,000
300,000
2,050,000

Last year, China added 900,000 mt/year of new capacity from

three plants, including Shenhua Groups 300,000 mt/year CTOlinked PP plant at Yulin. Further increase in capacity in 2016
will tip the country into a PP homopolymer exporter, market
sources said.

Copyright 2016 by Platts, McGraw Hill Financial

10

Source: Industry Sources

Capacity
(mt/year)

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

Full-year 2015 imports of PP homopolymer is expected at 3.4

million mt, down 6% from 2014.

mt/year PP plant] started up, said an end-user, predicting the

supply glut to continue in 2016.

But not all types of PP imports are trending down. China is

expected to import more than 1.3 million mt of block copolymer
grade PP in 2015, up 8% from 2014, as higher value applications
for copolymers continue to grow.

On the supply side, two plants are expected to start up in 2016:

Brahmaputra Cracker & Polymer Limiteds 60,000 mt/year plant
in Dibrugarh and the 340,000 mt/year ONGC Petro additions
Ltds plant in Gujarat, both starting up in H2 2016, sources said.
Huang Yi-Jeng, yi.jeng.huang@platts.com; edited by Irene
Tang, irene.tang@platts.com

Middle Eastern producers eye sales to Vietnam

Vietnam is expected to be one of Southeast Asias hottest
growth market, with demand forecast to grow annually by
7% in 2016 and beyond, according to Platts Petrochemical
Analytics.
The country has virtually no domestic PP capacity, with the
exception of PetroVietnams 150,000 mt/year plant at Binh Son.
Vietnams annual PP deficit is expected to reach 938,000 mt in
2016, widening to 1 million mt by 2017.
Vietnam has the lowest barrier to entry for PP imports among
Southeast Asian countries, according to industry duty data. Free
trade agreements with China and ASEAN members means PP
imports from those countries are duty free, while supply from
India, Saudi Arabia and other countries incur a nominal import
duty of 2%.
Still, Middle Eastern producers see Vietnam and Southeast Asia
as strategic growth markets. A quarter of Vietnams plastic
imports come from Saudi Arabia, according to import data
obtained from a Vietnam-based trader.
[In] Southeast Asia, there are potential growth [markets] like
Malaysia, Indonesia, Thailand, Vietnam. I think they will, for the
next 20-25 years, play the role that China has played for the
last 30 years, Saudi Basic Industries Corporation CEO Yousef
Abdullah Al-Benyan told Platts in an interview in November.
Aggregate demand from Indonesia, Malaysia, the Philippines,
Singapore, Thailand and Vietnam will exceed 5 million mt in
2016, and is expected to grow at 5% annually over the next few
years, according to Platts Petrochemical Analytics.
Even with rapid growth, Southeast Asia is not expected to
replace Chinas massive PP consumption footprint, which
is estimated at 21 million mt in 2016, anytime soon. This will
continue to add pressure on the export-oriented Middle Eastern
producers in 2016, as China becomes more self-sufficient.

ASIAN VINYLS MARKET EXPECTED TO BE BEARISH

IN 2016 ON CONTINUED IMBALANCE
Weaker margins in Asia are expected to be prolonged amid a glut
of PVC and VCM while EDC supplies grow thin.
The imbalance of the Asian vinyls market, including ethylene
dichloride, vinyl chloride monomer and polyvinyl chloride,
looks likely to become worse in 2016 as EDC supplies become
tighter, while VCM and PVC remain oversupplied, industry
sources said.
PVC supply in the region has been more than ample with the
startup of new plants in Asia, especially in China.
Chinese PVC plants, which use coal as a feedstock, have led to a
supply glut and it has been exporting in a bid to reduce stocks.
Japans Ministry of Economy, Trade and Industry said the Asia
had 1.11 million mt of PVC surplus in 2014, which is expected to
have risen to 1.16 million mt in 2015 and is expected to hit 1.5
million mt in 2016.
China exported 1.136 million mt of PVC in 2014 against imports of
550,015 mt, according to customs data.
In line with rising PVC supplies, margins have been weakening.
Asian PVC margins turned negative from 2014, with the PVCVCM spread averaging $134.52/mt, narrower than the $150/
mt needed for breakeven. From 2011-2013, the spread hovered
around $155-160/mt.
Market sources said Asian PVC supply was likely to increase in
2016 with more new plants scheduled for startup. Indonesias
Asahimas plans to startup its new 250,000 mt/year PVC unit
PVCVCM PRICE SPREAD REMAINS WEAK
($/mt)

($/mt)

Indias H1 2016 market expected weak on

ample domestic supply, imports
Indias PP demand is forecast at 4.1 million mt in 2016, up 7.8%
compared with 2015, according to Platts Petrochemical Analytics.

250

150

950

But even with the projected strong growth rate, traders and endusers are predicting a weak H1 2016 for the PP market in India.

100

800

50

650

Now that China is not buying, Middle East producers will need
to give significant discounts to offer into India, especially after
MRPL [Mangalore Refinery and Petrochemicals Ltd.s 450,000

Copyright 2016 by Platts, McGraw Hill Financial

11

Spread (left)
PVC CFR China (right)
VCM CFR Far East Asia (right)

200

0
Dec-12
Source: Platts

Jun-13

Dec-13

Jun-14

Dec-14

Jun-15

1250
1100

500
Dec-15

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

in Anyer in the first quarter of 2016. Asahimas is likely to start

selling PVC as early as January.

CAUTIOUS RECOVERY SEEN FOR ASIAN POLYESTER,

FEEDSTOCKS PTA, MEG IN H1 2016

In addition, supplies from the US are also increasing. Chinas

PVC imports from the US over January September were
183,566 mt, rising 3.9% from a year earlier, according to Chinese
customs data.

Platts analysis shows PTA prices are foreseen to be stable to

firmer amid seasonal high demand while Chinese MEG imports
are forecast to exceed 8.6 million mt on firm demand. Higher run
rates are expected to be seen across Northeast Asian PET and
polyester plants in the meantime.

Platts data showed that Asian PVC price has averaged $837/mt
for most of 2015, compared with an average of $1,018.54/mt in
the whole of 2014.
Some market sources said some material may be
absorbed by Australia, where a PVC plant is due to be shut
permanently early 2016. Australian Vinyls plans to mothball
its 130,000 mt/year PVC unit in Laverton, Victoria, early
2016. A market source said Australia would increase PVC
imports following the shutdown but fresh requirements are
still unclear.

Most Asian polyethylene terephthalate, polyester and feedstock

producers are cautiously optimistic of a recovery in feedstock
purified terephthalic acid and monoethylene glycol prices in
the first half of 2016 at least from March onwards pulled by
seasonal high demand for both polyester and PET resin, and
improved macroeconomic data from China and India.
Polyester demand from China is expected to remain healthy
throughout 2016, according to a global producer, who also forecast
Indian demand growth to outpace the rise in global demand.

VCM tightness expected to ease

Structurally, the Asian VCM market is short. Japans METI has
forecast that Asia would be short of 209,000 mt of VCM in 2016,
compared with 266,000 mt in 2015 and 534,000 mt in 2014.

Our forecast is for Indian GDP to exceed the 7.5% projected by the
IMF [International Monetary Fund] for 2016. In terms of polyester,
global growth is likely to be around 5% whilst we anticipate Indian
polyester demand to grow about 6%-7%, he said.

Chinese customs data showed strong demand for VCM imports

in 2015. China imported 624,859 mt of VCM over JanuarySeptember, up 20.1% year on year.

The weak global demand seen during the second half of 2015
for polyester and PET resin has markedly pressured down Asias
polyester, PTA and MEG markets.

On the other hand, Asian VCM prices fell in 2015. According

to Platts data, CFR Far East Asia VCM has averaged $693.28/
mt so far in 2015, falling 21.6% from the average price for the
whole of 2014.

Negative China macroeconomics, reports of historical lows in

Chinas Producer Price Index which dropped 5.9% in September
2015 from a year earlier marking the 43rd consecutive month
of deflation and Chinese flash Purchasing Managers Index
which fell to a record 77-month low of 47.0 in September, have
all contributed to spook the market and diminish confidence in
any sort of recovery.

Asian VCM is seen to be under pressure in 2015 in line with a

bearish PVC market and this is to continue in 2016.
On the other hand, EDC supply is expected to become tighter,
following the startup of new Indonesian VCM plant.
Japans METI has forecast EDC deficit in the region at 1.29
million mt in 2016, up 12.8% from 2015.
Market sources see Asahimas cutting its exports of EDC, a
feedstock for VCM, after the startup of the new VCM plant.
Despite supply tightness, Asian EDC prices are not expected to
go up due to the expected influx of US cargoes.
China imported 480,232 mt of EDC over January to October
2015, down 17.5% from a year earlier, according to customs data.
Chinas EDC imports from the US over January-October were
304,240 mt, down 25.2% from the previous year.
Platts data showed that the CFR Far East Asia EDC
averaged $288.53/mt for most of 2015, down from the
average of $444.15/mt in the whole of 2014. Fumiko
Dobashi, fumiko.dobashi@platts.com; edited by E Shailaja
Nair, shailaja.nair@platts.com

Copyright 2016 by Platts, McGraw Hill Financial

12

For polyester and PET feedstock PTA, prices have been under
pressure since the start-up of mega worldscale plants in China,
each over 1 million mt/year in size between 2009 and 2013,
which gradually culminated to an oversupply of PTA and price
declines and negative margins through 2014.
But a recovery in PTA prices was seen in Q2 2015 after Chinas
Dragon Aromatics shut its paraxylene plant in Zhangzhou
following an explosion and fire on April 6. This in turn, led Xianglu
Petrochemical to shut its 4.5 million mt/year PTA plant at
Zhangzhou and the 1.65 million mt/year PTA plant in Xiamen, as
most of its PX feedstock comes from the Dragon Aromatics plant.
Since April 6, Asian PTA prices had climbed progressively through
to June, hovering at around $690/mt and $750/mt CFR China.
But since July, PTA prices had corrected on seasonal demand
lull, and a lack of recovery in downstream PET and polyester
markets. Asian PTA prices fell from $660/mt CFR China on July
10 to $580/mt CFR China on September 28.
In terms of yuan-denominated domestic PTA prices, the price
slippage has been less sharp, and prices had in fact recovered

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

SPECIAL REPORT: PETROCHEMICALS

by early October. Major Chinese PTA producers are optimistic

that PTA prices will remain stable through to early February, and
likely rise in Q2 2016 as supply continues to be snug.

The MEG production margin is calculated by multiplying the

ethylene price by a conversion of 0.6 and adding an estimated
$150/mt in production costs.

PTA prices stable to firmer in H1 2016

amid capacity cuts in china
Chinas PTA production is expected to stay at 34.44 million mt/
year in H1 2016.

Operating rates across downstream Taiwanese and South

Korean PET and polyester plants were reported at around
80%-85%, while Chinese PET, polyester producers were heard
operating at even lower rates of 75%-80% in late Q3, and
currently heard at around 70%-75%.

Apart from Xianglu Petrochemicals plants which were affected

by the outage of Dragon Aromatics Zhangzhou PX plant,
China saw the permanent closure of 3.2 million mt/year of PTA
capacity after Shaoxing Yuandong filed for bankruptcy earlier
in 2015, ceasing operations at all its four plants at Shaoxing in
eastern Chinas Zhejiang province.
In fact, Chinese PTA producers have seen PTA margins derived
from yuan-denominated sales flipped to positive by late October
to around Yuan 100-220/mt profit.
PTA margins are calculated based on a 0.66 multiplied by yuandenominated PX feedstock prices, plus a conversion cost of
Yuan 600-700/mt. At current PTA price of Yuan 4,720/mt and PX
price at Yuan 5,900-5,950/mt, margins are around Yuan 93/mt
to Yuan 226/mt, depending on each PTA producers cost, said a
Chinese producer.
We expect to be able to enjoy positive margins through to Q2
due to the absence of both Shaoxing Yuandong and Xianglu
Petrochemical from the PTA market, as well as the traditional
high season for polyester and PET, which would drive both
demand and prices of feedstocks PTA and MEG higher, said
another major Chinese PTA producer.
MEG margins to turn positive by Q2 on
robust demand from China, India
Asian MEG margins have been under pressure since the second
half of 2015, as a combination of low seasonal demand for PET
and polyester, as well as reduced PET operating rates across
Northeast Asia, have led to weaker buying interest for both
feedstocks MEG and PTA.
Since July 10, the Asian MEG production margin was calculated
at minus $15/mt with Asian ethylene assessed at $1,230/mt CFR
Northeast Asia and Asian MEG assessed at $873/mt CFR China.

ASIAN MONOETHYLENE GLYCOL PRICES FALL SHARPLY IN LATE

Q4 2015 ($/mt)
1100

PET Bottle Grade FOB Northeast Asia Weekly

MEG CFR China Weekly
PTA CFR China

1000
900
800
700
600
500

12-Jul

02-Aug

23-Aug

13-Sep

04-Oct

25-Oct

Source: Platts

Copyright 2016 by Platts, McGraw Hill Financial

13

15-Nov

06-Dec

Run rates across Taiwanese, South Korean and Japanese

MEG plants are reported around 80%, while in China, rates are
estimated at around 70% by taking the average of low 30%-40%
for coal-based MEG production and around 80% for traditional
MEG production. Operation rates across Middle Eastern MEG
plants are around 85%-90%.
With current MEG prices hovering around $565/mt CFR China,
and ethylene contract prices around $890/mt CFR Northeast
Asia, ethylene-based MEG producers are suffering significant
losses at around minus $115/mt. However, naphtha-based
producers are still able to enjoy margins of around $50/mt, given
current naphtha prices at around $450/mt C&F Japan, said a
Taiwanese MEG producer.
With seasonal demand expected to pick up from downstream
polyester and PET markets from March, we anticipate the
margins for naphtha-based producers to improve ... we forecast
MEG prices to improve to around $630-$650/mt by Q2, the
producer added.
Chinese imports of MEG have in fact increased since 2014.
China imported 8.24 million mt of MEG in 2014, compared
with 8.2 million mt in 2013 ... and will likely import around 8.5
million-8.6 million mt in 2015. For 2016, China would likely import
around 8.6 million mt of MEG, if not more, based on the IMFs
forecast of 6.3% GDP, he said.
A global MEG producer anticipates Indian demand to pick up
in 2016, extending the upward momentum seen last year. The
producer estimated Indias MEG imports in 2015 will reach just
under 1 million mt, and to exceed 1 million mt in 2016.
Global supply of MEG will remain tight whilst non-conventional
sources of MEG supply will continue to be unstable. Indias
Reliance Industries will likely be able to start up its new
750,000 mt/year MEG plant at Jamnagar in Gujarat only over
October-November 2016. Further depleting supply into Asia
would be the regular maintenance turnarounds at the MEG
plants located at Al Jubail and Shuaiba, owned by Saudi
Arabias Sharq Eastern Petrochemical Co., Jubail United
Petrochemical Co. and Equate, from January through August,
the global producer added.
Seasonal demand to lift PET prices,
improve/increase run rates
Asian PET and polyester makers have reduced operating rates
in Q4 2015 amid persistent bearish downstream demand. Run
rates across Asian PET and polyester plants in Taiwan, South

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

Korea and Japan are reported at around 75%-85%, while in

China, rates are said to average 75% of capacity.
Prices of Asian PET have fallen progressively from September
through to November due to falling MEG and PTA feedstock
prices. PET margins, while remaining positive, have seen
significant erosion.

ACETIC ACID PRICES FELL IN 2015 ($/mt)

550

Acetic Acid CFR SE Asia Weekly

Acetic Acid CFR South Asia Weekly
Acetic Acid FOB China Weekly

500
450
400
350

The PET production margin is calculated by multiplying the

MEG price by a conversion of 0.34 and multiplying the PTA price
by a conversion of 0.87, and adding an estimated $150/mt in
production costs.
On October 7, the Asian PET production margin was calculated
at $18/mt, with Asian MEG assessed at $663/mt CFR China,
Asian PTA at $600/mt CFR China, and Asian PET at $915/mt FOB
Northeast Asia, Platts data showed.
PET prices are likely to stay within a range of $900-$1,000/
mt through March, with a potential upturn in prices during the
second quarter, depending on demand, and also on MEG and
PTA feedstock prices, said a Taiwan-based PET producer.
With improved downstream demand, Asian PET and polyester
production rates would likely be raised by Q2 to around 85%-90%
across Taiwan, South Korea and Japan, while in China, rates would
likely be at the higher 80%-85% range, the producer added.
Demand typically picks up following the end of the Lunar New
Year holiday season from early March and remains high through
end of June.
But market participants are uncertain about the strength of
recovery in demand, given the lower growth forecast for China.
Indian polyester demand will however stay robust, with one
global producer anticipating growth at 6%-7% for 2016.
The IMF has forecast a slower GDP growth rate for China,
at 6.8% for 2015 and 6.3% for 2016, from 7.3% in 2014. For
India, the fund sees GDP growth picking up in 2016 to 7.5%.
Jennifer Lee, jennifer.lee@platts.com; edited by Irene Tang, irene.
tang@platts.com
FUNDAMENTALS FOR VAM SEEN POSITIVE BUT
AA LIKELY TO REMAIN BEARISH IN 2016
The outlook for acetic acid and vinyl acetate monomer is
mixed as AA is under pressure from oversupply and a weak
downstream market while tight supply and firm feedstock costs
prop up VAM. Also supporting the latter VAM applications
continue to see robust demand.
The Asian acetic acid and vinyl acetate monomer markets
are seen to be heading in different directions early 2016, with
AA coming under pressure from oversupply, low feedstock
methanol costs and lackluster downstream demand, while VAM
pushes up amid tight supply and a robust downstream demand.

Copyright 2016 by Platts, McGraw Hill Financial

14

300
250

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Nov

Dec

Source: Platts

VAM PRICES TREND UPWARDS FROM ENDOCT ($/mt)

1200
1100
1000
900
800
VAM CFR South Asia Weekly
VAM CFR SE Asia Weekly
VAM CFR China Weekly

700
600

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Source: Platts

The general feeling is that the trajectory [for acetic acid] is

downward for 2016, a trader in China said. Producers want to
push out maximum cargoes but buyers have disappeared due
to bearish sentiment. Demand is also likely to tumble during the
Lunar New Year holiday period in February, he said.
Feedstock methanol costs, which are expected to move down
in line with crude and energy values, will put more downward
pressure on AA.
Many producers inside and outside China [have already] cut
production or shut some plants mainly due to poor economics,
an industry source in North Asia said.
BP YPC Acetyls Co., for example, halted production at its
500,000 mt/year AA plant at Nanjing, China, since endSeptember due to poor margins, sources said.
We are losing money [on some deals] due to low AA prices, a
producer in China said, noting that the run rate at his companys
AA plant was already trimmed from 80% in October to 70%,
and more cuts could ensue in light of the challenging market
conditions and weak downstream demand.
Purified terephthalic acid, or PTA, is among the fastest growing
applications within the AA market.
Existing PTA manufacturers are already suffering from
excess capacity, low production margins due to strong
prices of feedstock paraxylene, sources said, adding that no
new major downstream PTA plant expansions were planned
in China for 2016.

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

VAM seen firm

With AA languishing in 2016, one would expect VAM another
downstream of AA to move in line, but VAM prices are likely
to be propelled by positive fundamentals and strong ethylene
prices, market participants said.
They estimate the CFR Southeast Asia marker to cross the
$950/mt level in the coming months.
The CFR SEA VAM price was assessed at $880/mt on
December 10, down 15.78% from the assessment on January 8,
2015, while the CFR South Asia marker plummeted 16.43% over
the same period to be assessed at $890/mt on December 10,
Platts data showed.
The main factor supporting VAM in 2016 is tight supply.
The Sinopec Group was heard to have declared a force majeure
at its Sichuan Vinylon plant on December 10, industry sources
said. The problem likely started on December 6 or December
7 due to some feedstock concentration at the site and has
escalated since then, sources added.
Sinopec declined official comment.
Sinopecs VAM plant at Chongqing, southwest China, has a total
nameplate capacity of 500,000 mt/year.
With Sinopecs force majeure, supplies would tighten as
Singapores Dairen VAM plant has already stopped offering
material after Shell declared a force majeure recently,
sources said.
Shell declared force majeure on the supply of ethylene
and propylene from its steam cracker at Pulau Bukom
in Singapore, industry sources said in early December.
The Singapore steam cracker has a production capacity
of 960,000 mt/year of ethylene, 540,000 mt/year of
propylene, 186,000 mt/year of butadiene and 276,000 mt/
year of benzene.
Strong ethylene prices are also expected to push up VAM.
The Asian ethylene market is likely to remain tight in 2016 as
demand stays stable in line with the startup of a new derivatives
unit, while no major steam cracker expansions are planned,
industry sources have said.
The CFR Northeast Asia ethylene marker has averaged $1,102/
mt for most of 2015 compared with $1,425.69/mt in the whole of
2014, data showed.

The swing plants can each produce 45,000 mt/year of EVA/

LDPE, with the EVA output containing vinyl acetate content of
up to 40%, including all ranges of applications, the source said.
Surabhi Sahu, surabhi.sahu@platts.com; edited by Haripriya
Banerjee, haripriya.banerjee@platts.com
POOR DOWNSTREAM DEMAND, LOW NAPHTHALENE
PRICE KEEP ASIAN OX UNDER PRESSURE
A bearish outlook is foreseen for orthoxylene as demand
plunged in China in H2 amid weak production margins
for OX while naphthalene is becoming more popular in
downstream use.
Asian orthoxylene is expected to remain under pressure in
the new year amid poor demand for plasticizers, lower priced
downstream naphthalene-based phthalic anhydride and poor
margins for OX production, market sources said.
The problem is that demand for plasticizers is low and fewer
traders are trading OX, so liquidity is less. South Korea has
no exports and Taiwan also has less exports because [stateowned] CPC is not running its plants. The main supplier is Indias
Reliance Industries Ltd., a Singapore-based trader said.
OX is primarily used for the production of phthalic anhydride
or PA, an intermediate in the production of plasticizers such
as dioctyl phthalate. It is also used in other products such as
unsaturated polyester resin and paint.
Plasticizers are used, among other things, to soften PVC to
make imitation leather.
However, market sources said Chinese PA producers who use
OX as their feedstock were running their plants at an average
rate of below 50% in 2015 as plasticizer demand had weakened,
most significantly in the second half of the year.
Significant demand drop in China
This made an impact on Chinas OX imports, which slumped
13% on average over July-October, compared to January-June,
customs data showed.
When considering that this happened in the wake of the
shutdown of one of Chinas major OX producers, TaiwanORTHOXYLENE PRICES FALL ON POOR DEMAND, COMPETING
FEEDSTOCK IN 2015 ($/mt)
1000
900

Meanwhile, VAM applications continue to see robust demand,

sources said.
In Taiwan, the USI Group companies plan to startup two new
ethylene vinyl acetate/low density polyethylene plants in
Kaohsiung by the first quarter of 2016, a source close to the
company said.

Copyright 2016 by Platts, McGraw Hill Financial

15

800
700
600

Jan

Source: Platts

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

SPECIAL REPORT: PETROCHEMICALS

ASIA OUTLOOK 2016: OLEFINS AND POLYMERS

owned Dragon Aromatics, in April, the impact is even more

significant. Combining these two factors, one China-based
trader estimated that OX consumption in China decreased
by 10,000-20,000 mt/month from the first half of 2015 to the
second half.
Chinas imports came in at a year-to-date low of 19,328 mt in
October, customs data showed.
South Korea, previously one of the main suppliers of OX to
the Chinese market, has not exported any OX at all so far
in 2015, customs data shows, as South Korean producers
have kept run rates at a minimum, supplying only to
domestic customers.

Naphthalene, which is derived from coal and is a by-product

of the steel industry, has seen prices fall, making it more
competitive as a feedstock for PA. The naphthalene price in
Northern China was heard to be about Yuan 2,100/mt late last
year. After adding freight cost to East China, the price would
come to about Yuan 2,400-2,600/mt, still much lower than OX at
Yuan 4,900-5,200/mt, market sources explained.
As a result, naphthalene-based PA is currently priced about
Yuan 700/mt lower than OX-based PA, a PA maker in China said.
China has a total OX-based PA production capacity of about 1.8
million mt/year, and naphthalene-based PA capacity of about
600,000-700,000 mt/year, market sources said.

OX producers were also facing poor margins as its spread

against feedstock isomer-grade mixed xylene had turned
negative.

Naphthalene-based PA is mostly used to make unsaturated

polyester resin, but can also be used in the production of DOP,
although discoloration can be a problem, sources said.

Isomer-MX was assessed at $655/mt FOB Korea on December

11, $21/mt above OX which was assessed at $634/mt FOB Korea.
However, integrated producers have a spread of $204.80/mt
above naphtha at $429.25/mt CFR Japan, based on December
11s price assessment.

Looking to 2016, no major improvement in the demand for OX is

expected in the short term, sources said. But if idled OX plants
like Dragon Aromatics 200,000 mt/year plant in China and
Singapores Jurong Aromatics similar-capacity OX unit, start
up soon, supply would be added to what seems to be an already
oversupplied market.

Naphthalene more competitive

The lower cost of naphthalene makes it a more ideal feedstock
for PA than OX, said sources.

So far, however, no restart dates have been announced for

either. Gustav Holmvik, gustav.holmvik@platts.com; edited by
Haripriya Banerjee, haripriya.banerjee@platts.com

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Copyright 2016 by Platts, McGraw Hill Financial

16