Asian petchem producers to cut output on weak margins

A seasonal fall in demand and pressure from global inflation is crimping margins, slowing plastics exports

Petrochemical producers across Asia-Pacific are expected to further reduce output at their ethylene crackers and downstream polymers plants from August and September, as a result of weaker margins and demand.

Plastics demand in the region has fallen since the beginning of the third quarter, both seasonally as well as on pressure from global inflation. Exports are slowing, while domestic consumption is falling, partly owing to currency depreciations against the US dollar in the least developed countries. The result was a sharp drop in polymer prices across Asian markets in the second half of July. And underpinning the bearish sentiment is weak demand in the key Chinese market, as its strict Covid-19 policies impede economic growth.

Falling polymer prices against feedstock crude, naphtha and LPG have made producers wary, and only looking for supply on an as-needed basis. New production capacity is also leading to increasing supply length. The resulting pressure on petrochemical margins has led to many producers bringing forward maintenance works, further tapering reducing run rates or cutting output for the first time.

In China, negative propane dehydrogenation (PDH) margins has led to a higher number of shutdowns, with two units in Ningbo and one in Tianjin, east China, starting maintenance in late July. PDH margins stood at minus $165/t by 28 July. The dampening effect on regional propane demand resulted in the price of deliveries to Ningbo falling to $5/t discounts to September Argus Far East Index (AFEI) swaps.

But weakening LPG prices have widened discounts to naphtha, with the propane cfr Japan prices at $35/t under naphtha in late July, helping to boost demand from northeast Asian ethylene producers. A South Korean importer bought an evenly split propane-butane large cargo for delivery in the second half of August from the Mideast Gulf and a similar cargo for September arrival from Dampier, Australia. But demand from crackers is still relatively muted despite the advantages against naphtha given propane margins were at minus $214/t by the end of last month.

Feedstock cash margin comparison