China olefins weighed down by downstream inventories build

MOSCOW (MRC) -- Industry watchers had expected bullish ethylene and propylene spot prices in China after the Lunar New Year holiday, but the coronavirus disease 2019 (COVID-19) outbreak has turned the situation on its head, according to Chemweek.

In January, expectations that prices would rise were based on reduced offers from steam crackers and rising Chinese derivative demand for February production, according to the IHS Markit Asia Light Olefins report. However, as the scale of the epidemic expanded and amid draconian measures taken by the Chinese government to contain the spread, demand destruction became inevitable.

China’s ethylene capacity in 2020 stood at 32.5 million metric tons/year (MMt/y), with the output loss in January put at 143,000 metric tons, or 5.7% of capacity, according to IHS Markit data. By 21 February, 60% of Chinese ethylene producers had reduced operating rates to around 80% due to weak derivative demand and production loss was estimated at 179,000 metric tons, or 7.63%, for the month.

Polyethylene (PE) producers, for instance, have reported stocks surging to 23 days in mid-February, up from seven days in early February. Warehouses of PE producers’ inventory were filled to the brim and around 64% of them had to cut run rates, resulting in some 250,000 metric tons of PE supply loss this month, according the IHS Markit COVID-19 Weekly Focus Report.

On PE demand, however, travel restrictions meant that migrant workers were unable to return to the factories. Operation rates at PE converters will remain subdued, and demand loss stemming from low run rates or plant closures is estimated at 2.5 million metric tons (MMt) in February. However, as China domestic PE prices are at a record low, IHS Markit expects converters to replenish their feedstock and boost consumption by almost 1 MMt. The very attractive PE price will also increase demand for virgin PE over recycled PE. As such, the net demand for virgin PE will be further reduced to 600,000 metric tons, down from 2.5 MMt.

Consumption of monoethylene glycol (MEG), a fiber intermediate, has declined by at least 20% compared with a month ago as polyester units stayed shut after the two-week extended Lunar New Year holiday since employees were unable to return to work due to transport curbs and travel restrictions. With these restrictions easing, resumption of operation is expected to slowly recover. Significant cuts in other derivatives such as ethylene dichloride (EDC), vinyl chloride monomer (VCM), and styrene are adding to ethylene supply pressure.

Unlike ethylene, mainly produced at naphtha crackers, propylene can be produced at refineries or on-purpose units, which make up around 42% of China’s total propylene output. Operation rates at these units were at 85% in January but fell to 70% by the third week of February, resulting in an estimated production loss of 588,000 metric tons.

Downstream polypropylene (PP) capacity loss is expected at 450,000 metric tons in February as more than 50% of Chinese PP producers have cut run rates. PP inventory had risen to almost 20 days in mid-February, up from eight days at the beginning of the month, according to the COVID-19 report. Logistic issues continue to hurt the industry as producers were unable to ship their products to the market because of travel restrictions.

Hubei province, the epicenter of the COVID-19 epidemic, is a major automotive manufacturing hub and PP is used in light, medium, and heavy vehicle parts. The cessation of automotive production has a direct impact on PP demand.

While converters have restarted since 16 February, many factories are still waiting for migrant workers to trickle back from their hometowns.

On a more optimistic beat, PP is also used in the manufacturing of masks, aprons, and syringes. Demand for these medical products has increased sharply since the virus outbreak but as these are very lightweight products, the demand surge in this sector cannot compensate for the loss in other sectors, according to the report.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to ICIS-MRC Price report, negotiations over March PE shipments began in Russia last week. Some sellers announced further price increases in the spot low density polyethylene (LDPE) market because of tight supply. In the high density polyethylene (HDPE) market, on the contrary, some sellers announced lower prices. At the same time, negotiations over March contract prices of Russian PP also started last week. Local converters reported a price reductions, with propylene copolymers accounting for the greatest price decrease.
MRC

ABS imports to Russia down by 16% in Jan 2020

MOSCOW (MRC) -- Overall imports of acrylonitrile-butadiene-styrene (ABS) to the Russian market decreased in the first month of 2020 by 16% year on year to 2,300 tonnes, according to MRC's DataScope report.

This figure was at 2,750 tonnes in January 2019.

Imports of material dropped by 6% from 2,440 tonnes a month earlier.


ABS imports to the country have continued to decline for the third month in a row.

South Korean companies LG Chem and Lotte Advanced accounted for more than half of the country's ABS imports. Lotte Advanced increased its shipments of material in January 2020 by 3 times year on year, whereas LG Chem reduced them by 3%.

Styrolution and Trinseo shipped the bulk of European ABS. The share of their deliveries in the total imports fell to 18% in January 2020 from 40% a year earlier. Trinseo's imports of material accounted for the greatest reduction - shipments fell by 4 times.

MRC

EPS imports to Russia drop by 7% in Jan 2020

MOSCOW (MRC) -- Overall imports of expandable polystyrene (EPS) to the Russian market decreased in January 2020 by 7% year on year to 1,400 tonnes, according to MRC's DataScope report.

This figure was at 1,500 tonnes in January 2019.

At the same time, EPS imports to the country was also at around 1,500 tonnes a month earlier.

The Finnish producer Styrochem's material accounted for the bulk of shipments - 57% of the total EPS imports. The Chinese company Loyal occupied the second position. Styrochem's imports grew over the stated period by 39% year on year: from 600 tonnes to 800 tonnes. Loyal's January shipments slumped by 70% year on year. from 2,700 tonnes to 4,100 tonnes.

Chinese imports have plummeted over the past four months. The share of deliveries from China was 21% in January 2020 versus 40% in January 2019 and 27% in December 2019.
MRC

European producers intend to roll over February export PVC prices for March for CIS markets

MOSCOW (MRC) -- Negotiations over prices of European polyvinyl chloride (PVC) for March shipments to the CIS markets began this week. Ethylene prices fell significantly in Europe this month, however, European producers intend to roll over February export PVC prices for March, according to ICIS-MRC Price report.

The March contract price of ethylene was agreed down by EUR50/tonne from the previous month, which theoretically allows to talk about a reduction of EUR25/tonne in net cost of PVC. However, the balanced domestic market and strong demand from the key export markets allowed European producers to maintain export PVC prices at a high level. The roll-over of February export PVC prices for shipments to the CIS markets in March has been discussed.

By maintaining PVC prices steady, European producers were trying to compensate for the decrease in margins in caustic soda production, which had been registered in the last few months.

Demand for PVC rose from consumers in the CIS countries in March because of seasonal factors, and it was basically reduced to the procurement of resin with K=58 and K=70. European producers had no export restrictions, with a few exceptions.

Some buyers reported the desire of some manufacturers to achieve an increase of EUR5/tonne from February in export prices of PVC with K=70, but consumers resisted any attempts to raise prices amid lower feedstock prices.

Overall, deals for March shipments of suspension PVC (SPVC) to the CIS markets were negotiated in the range of EUR725-790/tonne FCA.
MRC

Eni plans oil, gas production plateau in 2025 under energy evolution

MOSCOW (MRC) -- Italian energy group Eni expects its oil and gas production to "plateau" in just five years under a major shift to renewables energy and cleaner fuels which it hopes will slash its carbon emissions, reported S&P Global.

Under the plans, Eni said its upstream production growth will average 3.5%/year up to 2025, with subsequent "flexible decline" mainly for oil afterward. Gas production will make up about 60% of total production by 2030 and rise to 85% in 2050, Eni said.

Oil and gas production will plateau at around 2.3 million b/d of oil equivalent in 2025, Eni said, up from around 1.9 million boe/d expected in 2020.

Reporting fourth-quarter and full-year 2019 earnings Friday, Eni said its oil and gas production averaged 1.87 million boe/d last year, up 5% on the year. In the fourth quarter of 2019, oil and natural gas production averaged 1.92 million boe/d.

"The strategy we announce today represents a fundamental step for Eni," CEO Claudio Descalzi said in a statement. "The result will be a portfolio that is more balanced and integrated and will be stronger for its adaptability and competitive shareholder remuneration."

Eni's long-term strategy builds on an existing goal to reach net-zero emissions from its own exploration and production operations by 2030. By 2050, Eni said it now plans an 80% reduction in net Scope 3 carbon emissions of its energy products sold and a 55% reduction in emissions intensity compared with 2018.

Eni's ambitious long-term strategy comes on the heels of BP's plan to become a "net-zero" carbon emitter across its business by 2050 as pressure mounts on oil companies to shift to cleaner energy and offset their emissions. Rival Shell plans to cut emissions from its products by 50% by 2050, and Total and Repsol have also net carbon reduction targets.

Key to Eni's net emission cuts will be the progressive expansion of Eni's installed global renewables power capacity to 3 GW by 2023 and more than 55 GW by 2050, mainly in OECD countries, it said.

With investments of Eur2.6 billion over the period, the renewable power push will include gas-fired plants with CO2 capture and storage projects.

Downstream, Eni said it plans a major expansion of its biorefining capacity to over 5 million mt/year, with the conversion of its existing Italian refining sites through new plants for the production of hydrogen, methanol and biomethane from waste materials.

In the long term, the Ruwais refinery in the UAE will be the only traditional refinery in operation, Eni said.

Eni said it plans to grow its retail power and gas activities to a customer base of over 20 million by 2050, with a complete transition to biofuels and renewable products by 2050.

"I think in a few years if you're unable to deliver green products, you're going to lose your customers so that is an essential part of the integration we are able to deliver," Descali said while presenting his plans.

As a result of Eni's drive to cut its carbon footprint, the company expects its capital spending to fall over the coming decades, Chief Financial Officer Massimo Mondazzi said.

Last year, Eni's capital investment totaled Eur7.7 billion (USD8.4 billion), nearly all of which was focused on the company's upstream oil and gas division

"Some business in which we are entering are less capital intensive so it's reasonable to project a lower amount of capex going forward," Mondazzi said in a strategy presentation.

By 2035, Eni expects that half of its capex will be focused on its upstream division together with associated carbon capture projects with the remaining 50% going to finance renewable energy and other parts of the business, Mondazzi said.

Expected average returns from the new renewables projects, mostly wind and solar, will be in the range of 7%-12%, he said.

Eni, which replaced 117% of production with new oil and reserves last year, said it did not expect to write off any of its existing proven reserves as stranded assets in its shift to cleaner energy.

The company, which has made a string of major gas finds over the last decade, said it expected to produce 85% of its existing 3P reserves by 2035 as a result of its "resilient and flexible" oil and gas assets which have an average $20/b breakeven.

Eni's net proven oil and gas reserves stood at 7.27 billion boe at the end of 2019, representing a reserve life index of 10.6 years at current production.

As MRC informed earlier, Versalis, the petrochemical division of Italy's Eni SpA, shut is cracker in Priolo, Sicily, for repairs in the last days of December, 2019. The capacity of the cracking unit at this complex is 490,000 tonnes of ethylene and 130,000 tonnes of propylene per year. The maintenance works lasted until February 2020.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,093,260 tonnes in 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments rose from both domestic producers and foreign suppliers. The estimated PP consumption in the Russian market was 1,260,400 tonnes in January-December 2019, up by 4% year on year. Supply of almost all grades of propylene polymers increased, except for statistical copolymers of propylene (PP random copolymers).
MRC