Pandemic impacts olefins, feedstocks, project schedules

MOSCOW (MRC) -- The impact of the COVID-19 pandemic on olefins markets around the world has seen demand for some feedstocks suffer while others have surged, with the collapse in oil prices also causing normally feedstock-advantaged regions such as the Middle East to stall or potentially cancel new projects, according to Chemweek with reference to IHS Markit experts at the World Petrochemical Conference (WPC) 2021, being held in an online format.

COVID cut into US liquefied petroleum gas (LPG) production and saw US export growth take a short-term pause, according to Walt Hart, vice president/global natural gas liquids at IHS Markit, speaking in a panel discussion on olefins, feedstocks, and derivatives. LPG production should begin to grow again, however, with US exports to remain the largest in the world, he says. LPG demand “remained relatively strong throughout the COVID crisis,” he said.

There’s still “room to grow” in China, but US LPG exports are now reaching into SE Asia and occasionally into India, he noted. With Saudi Arabia having cut oil production in recent years to support oil prices, Middle East LPG exports have gradually declined. “This is changing trade dynamics and the relationship between Japan’s spot prices and Middle East prices, and waterborne freight rates have essentially disintegrated over the last couple of years. The US is going to have more and more influence on the benchmark prices in Asia and Middle East going forward,” Hart said.

Some parts of the industry prospered and did “very well” because of the pandemic, due to constraints in movement and the lack of service activity occurring in the global economy, according to Matthew Thoelke, executive director/olefins and derivatives EAME at IHS Markit. Others suffered, with low-cost producers in North America and the Middle East seeing their cost advantage disappear during the second quarter of 2020, he said. “It was a very challenging year, particularly the second and third quarters, but as we moved into the fourth quarter we saw a real resurgence in demand. We saw the catching up of inventory that was required to refill the supply chain. That was anticipating a much stronger 2021, and so far this year that has continued,” he said. For the Middle East this has meant “not just higher margins for the industry generally, but also significant cost advantages coming back,” he added.

The industry was already “heading into a downturn, but that downturn has probably been a year shorter at the front end as a result of the pandemic,” according to Thoelke. The back end of the downturn is also “probably going to be shortened as we see the impact of delayed projects,” he said. “Specifically, we see several projects in the Middle East that are likely to be delayed. We see projects elsewhere in the world that will probably see the same fate. The reality is that the downturn is maybe going to be a little bit shorter, but maybe it’s also going to be a little bit deeper than we initially expected.”

Thoelke described the availability of capital and a willingness to put capital into assets as “really critical,” with that dynamic “generally very weak in the Middle East when you see low oil prices.” Most of the petchems projects under consideration currently are being pushed back by national oil companies (NOCs) because oil prices are such a key factor in driving the cash flows of the NOCs looking to invest, he said.

“The pandemic really came at a very bad time, in the engineering and pre-engineering stages, heading towards investment decisions. Suddenly you had this huge push towards minimizing capital expenditure, effectively pushing those projects later,” Thoelke said. Several of those projects potentially won’t now happen, he said. “There’s at least six or seven projects in the Gulf Cooperation Council (GCC) area, in the medium term - some ethane-based, some mixed feed, some heavier feed - and several of those may disappear or will definitely be later. We’re now looking at more like the end of the 2020s or 2030 before those projects can be realized,” he said.

Another factor is the challenge of “making liquid cracking work in the Middle East,” Thoelke said. “Fundamentally it’s best to be close to where the demand is because co-product valuations are higher as you’re moving low-cost product, crude oil, liquid feeds, or naphtha, rather than several different chemical products. The industry in the Middle East has really struggled to make it work in terms of taking those liquid feedstocks,” he said. Producers in the Middle East, however, are “shifting a little bit of their focus towards joint venturing and partnering with companies in those big demand centers in China and India,” he noted.

For methanol, the key longer-term takeaway is that demand growth is forecast to be slightly lower than GDP for the first time in many years, according to Mike Nash, vice president/global syngas at IHS Markit. There are only two methanol-to-olefins (MTO) units under construction, one due to start up this year, with another in 2022, he said.

“China’s E10 policy, however uncertain, looks as if it will result in lower methanol demand into direct blending, and methyl tert-butyl ether (MTBE). The relatively low crude oil price is likely to lead to poorer methanol economics, and therefore lower demand, into fuels applications,” he said. The impact of lower methanol demand growth will mean the likely closure of some older, less efficient capacity in China, while there will also like be “postponement or cancellation of methanol projects, particularly those Chinese-funded ones in the US, where cheap shale gas was being monetized into methanol to be shipped to east China to feed MTO production,” Nash said.

The potential future demand route for methanol as a marine fuel is more of a long-term opportunity, he said. “It’s not going to become material in the next five years, or possibly even the next 10 years. It’s going to be 10-15 years plus,” he said.

For butadiene, the impact of the pandemic on the market means a prolonged recovery, according to Bill Hyde, executive director/olefins and elastomers at IHS Markit. “It’s going to take years for butadiene demand globally to recover to the 2019 level, and as it does that, ethylene demand will continue to grow. So crude C4 supply will lengthen,” he said.

IHS Markit sees a longer crude C4 and butadiene market. “As we get out into the later years of the forecast, those that are looking at investing in ethylene crackers really need to think long and hard about where their crude C4 is going to go, and what they’re going to do with it, because there won’t always be a home for it in the butadiene market,” said Hyde.

We remind that, as MRC wrote before, in March, 2021, South Korea's petrochemical maker Hanwha Total shut down its LPG-fed steam cracker in Daesan from March for 45 days to expand its ethylene production capacity by about half to 450,000 mt/year from 300,000 mt/year currently. Once the expansion works are completed, the propylene capacity of LPG-fed steam cracker would be also raised to 130,000 tons/year from the current 80,000 tonnes of propylene.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 241,030 tonnes in January 2021 versus 217,890 tonnes a year earlier. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, PP shipments to the Russian market reached 141,870 tonnes in January 2021 versus 123,520 tonnes a year earlier. Supply of homopolymer PP and PP block copolymers increased.
MRC

Ukrainian PP imports fell by 5% in Jan-Feb 2021

MOSCOW (MRC) -- Ukraine's polypropylene (PP) imports to the Ukrainian market totalled 19,300 tonnes in the first two months of 2021, down by 5% year on year. Shipments of all grades of propylene polymers decreased with a few exceptions, according to a MRC's DataScope report.

February PP imports to Ukraine grew to 10,500 tonnes from 8,800 tonnes a month earlier, local companies increased their purchasing of propylene homopolymers (homopolymer PP) from Azerbaijan and Russia. Overall imports of propylene polymers reached 19,300 tonnes in January-February 2021, compared to 20,400 tonnes a year earlier.

The supply structure by PP grades looked the following way over the stated period.


Last month's imports of homopolymer PP to the Ukrainian market rose due to higher imports from Azerbaijan and Russia, totalling 8,800 tonnes, whereas this figure was 6,800 tonnes in January. Thus, overall homopolymer PP imports reached 15,600 tonnes in the first two months of 2021, up by 5% year on year.

Last month's imports of block propylene copolymers (PP block copolymers) were 600 tonnes, compared to 900 tonnes in January. 1,600 tonnes of PP block copolymers were imported over the state period, which is comparable to the last year's figure.

February imports of statistical propylene copolymers (PP random copolymer) dropped to 800 tonnes from 900 tonnes a month earlier. Overall imports of PP random copolymer reached 1,700 tonnes in the first two months of 2021 versus 2,000 tonnes a year earlier.

Overall imports of other propylene copolymers were less than 300 tonnes over the stated period.

MRC

Crude oil down as inventories and COVID vaccine halt threaten demand

MOSCOW (MRC) -- Oil prices fell for a third day, as a recovery in demand was threatened by rising US inventories and moves by Germany, France and some other European states to suspend the use of a major coronavirus vaccine, reported Reuters.

Brent was down USD1.11 cents, or 1.6%, at USD67.77 a barrel by 1325 GMT. U.S. crude fell USD1.17, or 1.7%, at USD64.22.

Germany, France and Italy said they would suspend the use of the Oxford/AstraZeneca vaccine after reports about possible serious side effects, although the World Health Organization said there was no established link to the vaccine.

The moves deepen concerns about the slow pace of vaccinations in the European Union, threatening an economic recovery and fuel demand.

The pandemic eviscerated demand for oil. Prices have recovered to levels seen before the global health crisis, but gains have been capped as vaccine rollouts have proceeded slowly in many countries.

In the United States, crude inventories are also rising as refineries have taken time to recover fully from a "big freeze" that halted their operations in Texas and elsewhere.

"Short-term direction will be set by the weekly US inventory reports," PVM analysts said in a note, adding that the dollar's strength against other currencies also weighed on the oil price.

Analysts expect another week of inventory gains when the American Petroleum Institute, an industry group, reports on crude stockpiles on Tuesday, followed by official numbers from the Department of Energy on Wednesday.

Inventories rose by 12.8 million barrels in the week to March 5, against forecasts for a rise of less than 1 million barrels.

As MRC informed previously, oil producers face an unprecedented challenge to balance supply and demand as factors including the pace and response to COVID-19 vaccines cloud the outlook, according to an official with International Energy Agency's (IEA) statement.

We remind that the COVID-19 outbreak has led to an unprecedented decline in demand affecting all sections of the Russian economy, which has impacted the demand for petrochemicals in the short-term. However, the pandemic triggered an increase in the demand for polymers in food packaging, and cleaning and hygiene products, according to GlobalData, a leading data and analytics company. With Russian petrochemical companies having the advantage of access to low-cost feedstock, and proximity to demand-rich Asian (primarily China) and European markets for the supply of petrochemical products, these companies appear to be well-positioned to derive full benefits from an improving market environment and global economy post-COVID-19, says GlobalData.

We also remind that in December 2020, Sibur, Gazprom Neft, and Uzbekneftegaz agreed to cooperate on potential investments in Uzbekistan including a major expansion of Uzbekneftegaz’s existing Shurtan Gas Chemical Complex (SGCC) and the proposed construction of a new gas chemicals facility. The signed cooperation agreement for the projects includes “the creation of a gas chemical complex using methanol-to-olefins (MTO) technology, and the expansion of the production capacity of the Shurtan Gas Chemical Complex”.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 241,030 tonnes in January 2021 versus 217,890 tonnes a year earlier. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, PP shipments to the Russian market reached 141,870 tonnes in January 2021 versus 123,520 tonnes a year earlier. Supply of homopolymer PP and PP block copolymers increased.
MRC

US crude oil inventory builds likely extend as refinery runs hold below normal

MOSCOW (MRC) -- US crude oil inventory builds likely extended in the week ended March 12 as the Gulf Coast refinery complex continued to operate at reduced capacity in the wake of the February deep freeze, an S&P Global Platts analysis showed March 15.

Total commercial crude stocks likely climbed 400,000 barrels to around 498.8 million barrels last week, analysts surveyed by Platts said. The counter-seasonal build would leave stocks 6.5% above the five-year average of US Energy Information Administration data, opening the widest surplus since early January.

The expected increase comes as nationwide refinery runs continue to hold well below normal following the mid-February deep freeze that took as much as 4.4 million b/d of refinery capacity fully offline Feb. 18.

Nationwide refinery utilization is expected to average around 74% of total capacity, analysts said. While this is a 5 percentage point uptick from the week prior, it would leave utilization around 9 percentage points below pre-freeze levels and still more than 14% behind the five-year average.

While the bulk of the impacted refineries have seen at least partial restarts, at least eight facilities were still operating at less than full capacity last week, and at least two facilities comprising a combined 700,000 b/d of capacity had no estimated full restart date.

US crude production, which saw a sharp decline in February in the weeks following the winter weather, had recovered to pre-storm levels of around 10.9 million b/d in the week ended March 5, EIA data shows.

In total, the storm is likely to cost roughly 70 million barrels in lost refinery runs, according to S&P Global Platts Analytics, considerably overshadowing aggregate crude production losses of 20 million-25 million barrels.

US crude exports averaged 2.68 million b/d in the week ended March 12, according to data from cFlow, Platts trade-flow software, roughly flat from an EIA-reported 2.63 million b/d the week prior.

Refined products stock draws likely extended amid still-weak refinery runs, though strong margins likely incentivized production from operational facilities.

Total US gasoline inventories likely declined 1.4 million barrels to around 230.2 million barrels, analysts said, while distillate stocks were expected 900,000 barrels lower at around 136.6 million barrels. The draw would leave inventories respectively 5.7% and 3.4% behind their five-year averages.

US Gulf Coast cracking margins for WTI MEH averaged USD13.54/b in the five-days ended March 12, S&P Global Platts Analytics data showed, up from a February average of USD9.98/b. The strong margins come on the back of a steep rise in gasoline cracks.

The USGC unleaded 87 crack versus WTI MEH averaged USD19.26/b last week, up 65% from a February average of USD11.65/b. On the US Atlantic Coast, New York Harbor RBOB cracks versus Brent climbed above USD20/b and were the strongest since August 2018.

Gasoline cracks were further supported by upward trending demand. Apple Mobility data showed US driving activity in the week ended March 12 was up around 3% from the week prior and nearly 8% above year-ago levels.

As MRC informed before, the largest US refinery, Motiva Enterprises’ 607,000 barrel-per-day Port Arthur, Texas, plant, returned to normal operations. The refinery was shut on Feb. 15 when freezing temperatures, rarely seen on the US Gulf Coast, knocked out steam supply. Motiva began restarting the refinery on Feb. 24.

Motiva Chemicals has also resumed operations at its mixed-feed cracker in Port Arthur, USA. The process of restart of this cracker with the capacity of 635,000 mt/year of ethylene and 340,000 mt/year of propylene began on 27 February, 2021, and finished late last week. The cracker wa shut along with the refinery at the same site on 14 February, 2021, because of the deep freeze.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 241,030 tonnes in January 2021 versus 217,890 tonnes a year earlier. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, PP shipments to the Russian market reached 141,870 tonnes in January 2021 versus 123,520 tonnes a year earlier. Supply of homopolymer PP and PP block copolymers increased.
MRC

Axalta acquires leading Chinese wire enamels producer

MOSCOW (MRC) -- Axalta announced that it has acquired Anhui Shengran Insulating Materials Co., Ltd., a leading Chinese producer of high-quality wire enamels used in a wide range of consumer electronics, electric vehicle, and industrial applications, according to Kemicalinfo.

The transaction is expected to close in the second quarter of 2021, subject to customary closing conditions. Financial terms have not been disclosed.

The acquisition will add new wire enamel products and capabilities to enhance Axalta’s offerings to customers across several end markets, including automotive, renewable energy, and consumer electronics.

“Anhui Shengran’s wire enamel products and capabilities are highly complementary to our growing Energy Solutions business,” said Shelley Bausch, senior VP of Global Industrial Coatings at Axalta. “This will be a solid platform for further specialization and growth as we support key customers in China. I am also excited to welcome the Anhui Shengran team to Axalta.”

“It was important to me that we were acquired by a company I could trust to treat my employees well, and I believe Anhui Shengran is in good hands,” said Zhangying Tu, executive director of Anhui Shengran. “We are excited to become part of Axalta, and we look forward to working together to add value and increase market share in the growing Energy Solutions market in China.”

With three distinctive product segments - wire enamels, impregnating resins and electrical steel coatings - Axalta’s Energy Solutions business provides a comprehensive portfolio of innovative and ecologically responsible insulating solutions for customers in new energy vehicles and other industrial markets.

As MRC informed earlier, in 2017, Axalta Coating Systems completed its previously announced acquisition of the Spencer Coatings Group, a leading manufacturer of high performance industrial coatings for heavy-duty equipment, general industrial, oil and gas, and glass coatings segments.

We remind that Russia's output of chemical products rose in November 2020 by 9.5% year on year. At the same time, production of basic chemicals increased in the first eleven months of 2020 by 6.6% year on year, according to Rosstat's data. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the January-November 2020 output. November production of polymers in primary form rose to 896,000 tonnes from 852,000 tonnes in October. Overall output of polymers in primary form totalled 9,240,000 tonnes over the stated period, up by 17.1% year on year.
MRC