Asia petchem prices strengthen on Saudi feedstock curbs

Asian petrochemical prices have risen across the board on the prospect of supply disruptions following attacks on Saudi Arabian oil facilities.

Feedstock supplies at state-owned Sabic and other Saudi petrochemical companies have been cut by 15-50pc after the attacks on the Abqaiq plant, the world's largest crude oil processing facility, and the Khurais oil field infrastructure. It is still unclear for how long, and by how much, production will be disrupted.

The following companies have announced feedstock supply cuts:

• Sabic: 49pc
• Sadara: 16pc
• Tasnee: 41pc
• Advanced Petrochemical: 40pc
• Yansab: 30pc
• Saudi Kayan: 50pc

The oil facilities that were struck in the 14 September attacks mainly produce export supplies of Arab Light and Arab Extra Light crude, forcing state-owned Saudi Aramco to shut in 5.7mn b/d of crude output. The attacks also halted production of an estimated 2bn ft³/d (21bn m³/yr) of associated gas, which will cut Saudi supplies of ethane and NGLs by 50pc.

LPG is used at petrochemical units to produce polymers such as polyethylene (PE) and ethylene glycols (MEG). Asian naphtha- and gas-based crackers often favour supplies of Middle East LPG such as propane because they are subject to lower taxes compared to rival US supplies, which have been hit by a 25pc tariffs under the China-US trade war.

But Chinese producer SP Chemical is now preparing to purchase feedstock propane from the US, despite the tariffs, as its term supplies from the Middle East are affected by the attacks. The producer started a new 700,000 t/yr LPG-fed cracker in Taixing in mid-August, and had stabilised production by the end of the month. The cracker is now operating at 80pc.

Direct buyers from Satorp, PetroRabigh and South Korea's S-Oil — which is majority owned by Aramco — have not received any notification of disruptions to their aromatics supplies. The impact on aromatics production appears to minimal so far, but this could change.

Satorp's aromatics capacity includes 140,000 t/yr of benzene and 800,000 t/yr of paraxylene (PX). PetroRabigh has 400,000 t/yr of benzene and 1.3mn t/yr of PX capacity, while S-Oil has total benzene capacity of 600,000 t/yr as well as 1.7mn t/yr of PX.

The new, world-scale aromatics production units in China being brought on line by Hengli Petrochemical and Zhejiang Petrochemicals are designed to run Arab Medium crude as baseload supplies, and can also process Arab Heavy. But these units could also be affected by the Saudi supply disruptions, as Aramco rejigs the grades it offers to Asian buyers to manage the impact from the attacks.

Chinese buyers favour styrene monomer (SM) supplies from the Middle East because these do not incur anti-dumping duties (ADD). China has increased its reliance on Middle East SM this year as a result, leaving buyers vulnerable to the fall in the region's SM supplies.

Prices of most aromatics in Asia rose by about $40/t or up to 6pc yesterday, the first trading day after the attacks. Benzene prices for November delivery on a fob South Korea basis settled at $730-740/t yesterday, up from $696-698/t on 13 September. PX prices rose to the highest level for a month, with November cfr China supplies trading as high as $825/t yesterday after being bid at $781/t on 13 September. October-delivery SM was bid at $1,075/t cfr China yesterday, without any counter-offer, compared to $1,030-1,040/t on 12 September, before the Chinese market closed for the mid-autumn festival holidays.

There have been no obvious price increases yet for ethylene and propylene, with market participants still seeking details on the market impact. But ethylene traders have held back offers in anticipation of a sharp jump in prices, which is expected by the end of this week, as they monitor the onset of production cuts and the impact on the downstream PE and MEG sectors.

But prices of PE and fellow derivative polypropylene (PP) in China have already strengthened in response to the supply concerns. Spot prices of linear low-density polyethylene (LLDPE) increased to 7,400-7,800 yuan/t yesterday from Yn7,250-7,500/t on 12 September, while LLDPE futures rise by Yn303/t to Yn7,630/t over the same period. Raffia PP spot prices increased from Yn8,650-8,750/t on 12 September to Yn8,800-8,900/t yesterday, while PP futures gained by nearly Yn300/t to Yn8,310/t.

But MEG futures in China hit a five-month high yesterday, after consumers in northeast Asia said they had received notification from a Saudi supplier that October MEG deliveries will be delayed.