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Ethylene profit gains may end on China supplies

October 21/2010

(Bloomberg) -- Profits from making ethylene may be capped in Asia next year after Chinese production jumped to the highest level in eight months.


The net return from producing ethylene by putting naphtha through a cracker is $150 a metric ton, according to Chemical Markets Associates Inc. It was $250 a ton in July, after a fire at Formosa Petrochemical Corp.s No.1 cracker in Taiwan reduced supplies. The profit may drop to $100 by January as new plants in Asia ramp up utilization rates. 


China, the worlds second-biggest crude consumer, is buying less ethylene as it boosts domestic production after a 42 percent jump in oil-refining capacity in five years. Manufacturers in South Korea and Taiwan count on China to buy 80 percent of their ethylene-based exports.


Theres still supply pressure from new crackers, said Suppata Srisuk, an analyst at Bualuang Securities Pcl. Most of the crackers in Korea and Japan will be the first group to shut down if the ethylene spread gets too low.


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