ASIA OUTLOOK 2016 AROMATICS AND BLENDSTOCKS PETROCHEMICAL SPECIAL REPORT JANUARY

Transcription

1 ASIA OUTLOOK 2016 AROMATICS AND BLENDSTOCKS PETROCHEMICAL SPECIAL REPORT JANUARY

2 FOREWORD Asia s market participants are mostly optimistic about the outlook for the aromatics sector in the first half of 2016, with Platts finding that most expect to see stability and improvement. A lack of new paraxylene production capacity in Asia, combined with the startup of downstream purified terephthalic acid plants in China, is expected to result in tight PX supply. On top of that, several participants expect a reverse arbitrage window for PX to again open from Asia to the US, a repeat of what occurred in August-September Toluene, which finds its way into PX and benzene production, looks set to gain from a post-lunar New Year pickup anticipated in China s construction industry due to returning demand for solvents used in paints. For styrene monomer, tight supply resulting from planned turnarounds over February-May and additional demand from new acrylonitrilebutadiene-styrene plants are expected to provide support. However, some market sources expect SM production margins to be squeezed by relatively high ethylene feedstock costs on the back of tight ethylene supply. Benzene may not fare as well due to oversupply and poor downstream derivative demand, with the glut in Asia expected to worsen due to additional capacity coming on stream in India, Saudi Arabia and South Korea. Nevertheless, benzene exports to the US are expected to lend support by continuing to absorb some of Asia s glut. On the other hand, one of benzene s major derivatives, phenol, faces thin production margins, which has led to plants either shutting down or cutting operating rates. Another derivative, caprolactam, will face oversupply as new plants come online in China, putting pressure on existing producers. Adding uncertainty to the direction of the aromatics markets in H will be global economic trends, with many market sources cautiously watching both China and whether crude prices rebound or sink further. That, and more, can be found in this first-half outlook for 2016 from Platts. Clement Choo, clement.choo@platts.com AROMATICS ASIAN PX DEMAND, MARGINS EXPECTED STABLE TO FIRM IN H The paraxylene market faces the challenge of oversupply which has put downward pressure on spot prices while giving rise to the possibility of exports to the US, much like benzene. Stability in terms of demand and margins seems to be the general expectation for early 2016 among several market participants in the Asian paraxylene market, with some expecting the reverse arbitrage movement to the Americas seen in 2015 likely to manifest itself in long-term supply contracts and also occasional spot supply in There will be no new PX capacities starting up until towards the second half of 2016, while new PTA capacity in China is set to start up from early This implies demand and supply balance may tighten in the first half of the year, then easing later on with added supply. PARAXYLENE CFR TAIWAN CHINA PRICES BELOW $800 mt AT YEAR END ($/mt) Jan Source: Platts Feb Mar Apr May China Prosperity Jiangyin Petrochemical, also known as Hanbang Petrochemical, targets to start up its new 2.2 million mt/year PTA plant at Jiangyin in eastern China s Jiangsu province over January-February. The new mega-plant at Jiangyin is set to increase the PTA capacity there from 1.8 million mt/year to 4 million mt/year. Also potentially starting up later in 2016 in China are Sichuan Chengda s 1 million mt/year PTA plant at Nanchong in southwestern China s Sichuan province, while Tongkun Group s second 1.5 million mt/year plant at Zhapu in eastern China s Zhejiang province is set to come on stream sometime in 2017, Platts has reported. The continuing fight for market share in the oversupplied PTA market is likely to continue to support PX demand and margins, sources have said. Meanwhile, some existing PX plants remain idle and face an uncertain future. In China, Dragon Aromatics 1.6 million mt/ year plant in Zhangzhou remains shut since an explosion in April. The plant s owner, Taiwan s Xianglu Group, has been in talks with state-owned China Petroleum and Chemical Corp., or Sinopec, to sell its Dragon Aromatics and Xianglu Petrochemical divisions, which also runs several PTA plants. No restart has so far been announced for Dragon Aromatics and Xianglu s PTA plants. In Singapore, Jurong Aromatics Corp. filed for receivership in September after debt-restructuring talks broke down. The restart of the 800,000 mt/year PX plant remains unclear at the moment. The company s condensate-based aromatics plant on Jurong Island has been offline since December 2014, just three months after it started commercial operations. However, a new PX plant also started production in the second half of China s Ningbo Zhongjin started up its 1.6 million mt/year plant at Ningbo in Zhejiang province, in August, and started supplying feedstock to its sister company, PTA producer Yisheng Petrochemical. Ningbo Zhongjin s new plant has a significant impact on the market as it lowered Yisheng s need for PX imports, and to a certain extent reduced the importance of Ningbo as one of China s main ports for PX imports, sources said. Jun Jul Aug Sep Oct Nov Dec 2

3 Two new PX plants outside of China are expected to start up in 2016: Indian Reliance s 2.2 million mt/year unit at Dahej and Petro Rabigh s 1.3 million mt/year unit at Rabigh in Saudi Arabia. Reliance is expected to export nearly 1 million mt/year of PX after the new plant comes on stream, while market sources said Petro Rabigh may export nearly all of its PX output. Reliance have indicated that its new plant will not start earlier than May, while Petro Rabigh s plant is expected to start towards the end of the year, Platts reported previously. China s Sinopec is also building a new PX plant at Hainan with the capacity to produce 650,000 mt/year. Production is expected to start in late 2016 or early Possible arbitrage flows to the Americas Separately, a factor that may also tighten supply in Asia is the possibility of long-term supply contracts as well as seasonal spot supply of PX by Asian producers and traders to the American continent, a reversal of the usual cargo flows in the past. In the second and third quarters of 2015, an arbitrage opened up for shipments of PX from Asia to locations such as the US and Mexico, with about 20,000 mt shipped from South Korea to these destinations over August and September, according to Korean customs data. Sources also said shipments had happened from the Middle East to the US at that time. The relative value of US aromatics feedstocks, especially through the summer, has been very high as lower oil prices have encouraged gasoline consumption and blending economics have put significant premiums on mixed xylene and toluene, an Asian trader said, adding that many traders and producers are looking at supplying the US on term basis but price negotiations are still difficult. With crude oil still hovering around the low $40s/b, a repeat of strong gasoline demand based on lower gasoline prices does seem like a possible scenario for Gustav Holmvik, gustav.holmvik@platts.com; edited by Irene Tang, irene.tang@ platts.com ASIAN BENZENE STRUGGLES UNDER SUPPLY PRESSURE, UNSTABLE DOWNSTREAM DEMAND In 2016, Asia will remain a major benzene exporter while more production capacity is expected to come on stream amid market cautiousness as a weaker global economy suppresses downstream demand. The Asian benzene market is expected to remain under supply pressure in 2016 amid addition of new plants in the region, said industry sources. In 2016, Asia and the Middle East will likely see a further 1.17 million mt of new benzene supply come on stream. WEAK MARGINS TO REDUCE BENZENE OUTPUT ($/mt) Jun-15 Source: Platts Benzene-toluene spread Jul-15 Aug-15 Paraxylene-toluene spread Sep-15 Oct-15 Nov-15 By the end of first-half 2016, India s Reliance Industries is expected to start its 500,000 mt/year benzene plant in Jamnagar. The company has announced a slight delay in starting up the plant from the initial early first-quarter 2016 date. In second-half 2016, South Korea s Hyundai Chemical, a joint venture between Hyundai Oilbank and Lotte Chemical, will start the 250,000 mt/year benzene plant in Seosan in Q3. In the second phase of Petro Rabigh s expansion plans, the Saudi Arabian company will also bring online its 424,000 mt/year benzene plant. Adding to regional supply, India s ONGC Mangalore Petrochemicals Limited issued its H sell tender in early December offering 90,000 mt of benzene, or 15,000 mt/month, to be delivered over January-June. Benzene prices in Asia averaged $692.93/mt year to date as of December 9, 43% lower on year, after more than 2 million mt of new capacity started in Ample supply put pressure on margins despite low naphtha costs, with the benzene-naphtha spread at $197.63/mt, almost half of what it was in Integrated producers typically seek a breakeven point of $250/mt to cover production costs. As margins are squeezed in 2016, benzene output rates from toluene disproportionation units in conjunction with a PAREX unit, or TDP-parex units, could be affected by the performance of co-product paraxylene. The FOB Korea benzene-toluene spread averaged $27.48/ mt year as of December 9, down 84.2% from 2014, remaining persistently below breakeven levels of $100- $120/mt. In comparison, the FOB Korea PX-toluene spread averaged at $162.07/mt over the same period in 2015, stable from the year before. Dec-15 This can either prompt integrated producers to feed more C9+ heavy aromatics feedstock to increase production of PX, or trim operating rates. But either way, it won t bring much respite to the Asian benzene market which has been suffering from supply overhang for much of 2015, said sources. 3

4 PETROCHEMICAL MARKET ANALYSIS Understanding complex petrochemical markets is crucial in gaining a competitive advantage. The global petrochemical feedstock slate is becoming more diverse. As producers strive for a cost advantage, low-cost feedstocks are fueling investments decisions. Platts analysis of the global petrochemical markets allows you to dig deeper into: Supply and demand Understand which regions have a supply surplus and which have a deficit and the impact new capacity additions will have. Long- and short-term coverage See how regional and global capacity will change over the next 12 months, or throughout the next 10 years. Variable cost curve See where each petrochemical facility sits on the variable cost curve and how cumulative capacity additions are affecting regional production costs. Coal-to-Olefins projects See new planned projects, together with the location, capacity and on-track status for each. Global trade flows Track how global trade flows are changing and understand what this means for each regional market. Platts analysis of the petrochemical markets is delivered through outlook reports, datasheets, visualization tools and direct access to our analysts. For more information on Platts Petrochemical Analytics, visit: 4

5 Firm downstream support unlikely Although new downstream facilities across Northeast Asia are also set to come on stream in 2016, lackluster demand and weaker macroeconomic data might affect their operating rates, said several sources. Approximately 1.2 million mt of new downstream styrene monomer capacity is scheduled to start up in China in 2016, but actual operating rates will depend on demand from the polystyrene market. But it remains unclear if the new SM capacities will be able to clear the benzene supply glut, said another source. The additional SM supply will offset production loss from the permanent shutdown of Asahi Kasei s 320,000 mt/year SM plant in Mizushima, Japan, in February-March. Arbitrage flow of US-origin SM cargoes into Asia was also seen to be high in 2016, with a total 270,222 mt expected in China over January-October. Ready supply of SM means lower demand for feedstock benzene. The FOB Korea SM-benzene spread averaged $418.45/mt in the first half of 2015 but dropped 18% in H to $343.12/mt as of December 9 -- all above the breakeven level of $250/mt. Phenol, another key downstream product of benzene, is also under downward pressure in The CFR China phenol-fob Korea benzene spread s year to date average was $199.85/mt as of December 4, down 14.8% from 2014, and well below the breakeven point of $250/mt. In the face of negative margins, several phenol producers have lowered their run rates further to 50%-70%. More supply is expected in 2016, with over 800,000 mt of fresh production capacity coming online in Asia and the Middle East. But possibility of these plants operating at full rates remains low on poor margins and tepid demand. Existing demand to remain While the outlook remains bearish, prices in 2016 are expected to be steady from 2015 with demand remaining more or less steady on year, said a South Korean trader based in Singapore. The US Gulf imported more than 1.5 million mt of benzene until September, with Asia supplying close to 60% of that volume. This despite the East-West arbitrage window staying shut on paper for most of As such, the US is expected to remain a destination for Asian arb cargoes in 2016, amid low domestic production there and steady to firming demand. Participants were also hoping for some demand growth in China, with the country importing over 1 million mt of benzene in up more than 80% year on year. A Southeast Asia-based trader said that China will likely maintain its buying status as long as downstream margins remain positive. Europe could be another outlet for Asian benzene in 2016, as lighter crack feed will lower domestic yield of benzene. European buyers may seek to cover their prompt shortages from the Gulf Coast, and purchase regular supply from Asia, said a Northeast Asian trader. But this will not be for huge volume, as Europe is typically a small buyer of benzene, said several sources. Genevieve Soong, genevieve.soong@platts.com; edited by Haripriya Banerjee, haripriya.banerjee@platts.com ASIAN SM SUPPLY TO TIGHTEN IN 2016 BUT DEMAND, US IMPORTS REMAIN UNCERTAIN Apart from tight availability due to major turnarounds in H1 2016, further squeezes are expected if feedstock ethylene continues to be firm. But, if more US-origin SM comes to Asia and weak crude and lackluster China demand continue, Asian SM tightness will be eased. The Asian styrene monomer market is expected to be steady to firmer in the first half of 2016, supported by tightening supply. Participants are also keeping an eye on downstream demand and the possibility of rising imports from the US. The market is set to lose around 222,900 mt of production over February-May as 1.92 million mt/year of its 19.6 million mt/year production capacity shuts for maintenance in Japan, Taiwan and South Korea. The three regions accounted for 63.4% of China s SM imports in 2014, according to China customs. Supply will also tighten with Asahi Kasei s permanent shutdown of its 320,000 mt/year SM plant in Mizushima, Japan, in February-March, which amounts to 160,000 mt capacity lost in H1. But a new SM plant is due to start up in China in March: Xinri Chemical s 300,000 mt/year facility in Changzhou, Jiangsu province, adding 150,000 mt in H1, according to market sources. SM PLANT TURNAROUNDS IN H (mt/year) Company Location Capacity Timing Northeast Asia LG Chemical Daesan, South Korea 170,000 mid-mar, 20 days Asahi Kasei Mizushima, Japan 390,000 mid-feb, 40 days Idemitsu Chiba, Japan 210,000 mid-apr, 45 days Denka Chiba, Japan 270,000 May, 60 days Nippon Steel SM Oita, Japan 190,000 Feb, 30 days Nippon Steel SM Oita, Japan 230,000 Mar, 30 days GPPC Tashe, Taiwan 220,000 mid-apr, 50 days Southeast Asia Idemitsu Pasir Gudang, Malaysia 240,000 mid-apr, 50 days Source: Market participants, company officials 5

6 The scrapping of one plant and the startup of another puts the net loss of Asian SM production capacity at 20,000 mt/year, or 10,000 mt in H1. Taking into account the production loss from turnarounds (222,900 mt), the scrapped Japan plant (160,000 mt) and the China startup (150,000 mt), the net loss of SM production capacity is estimated at 38,820 mt/month in H1. Supported by expectations of tighter supply, the 2016 FOB Korea basis SM term contract was concluded at a $10/mt premium to the benchmark FOB Korea assessments, up from around $7-$9/ mt in 2015, a number of market sources said. Another factor that could tighten SM supply in H1 is a thin margin for non-integrated SM producers who use ethylene and benzene as feedstock, causing them to reduce operating rates. The margin shrank to its narrowest in a year on December 2 due to firm feedstock ethylene, tumbling SM and weak four-quarter demand. The margin for non-integrated SM producers was calculated on December 2 at $87.20/mt FOB Korea below the breakeven level, down $2.05/mt from December 1. Shrinking SM inventories in East China are supporting predictions of tight regional supply in H1. November monthly average SM inventory was at 50,460 mt, or 14.3% lower than the four-year average of 58,900 mt. In the first half of 2015, sharply lower SM stocks in East China caused Asian SM prices to skyrocket. They sank to an average of 32,250 mt in June, or 70.4% below the four-year average. The stocks returned to normal levels in September and October. China demand, US inflows Downstream, increasing demand from acrylonitrile-butadienestyrene polystyrene expansions is likely to tighten Asian SM supply further. South Korea s LG Chemical plans to expand the capacity of its 750,000 mt/year ABS plant in Yeosu by up to 100,000 mt/year in Q1. The expansion is likely be completed by end-january or February. Samsung SDI plans to expand the capacity of its 560,000 mt/ year ABS plant in Yeosu by up to 30,000 mt/year. But a factor offsetting tighter regional supply could be arbitrage cargoes from the US, where SM producers are taking advantage of plentiful and inexpensive ethylene feedstock. Much of the US arbitrage supply was heading to Europe since Ellba s 550,000 mt/year of SM plant in Moerdijk, Netherlands, shut in mid-2014 due to a fire, tightening European supply and supporting prices there. But those arbitrage cargoes are expected to slow when the plant restarted in early January Asia was the second-largest export destination for US SM producers in They sent 43.1% of their exports to South America, 30.1% to Asia and 25.9% to Europe. In 2014, Europe SM RALLY IN H1 LOSES STEAM IN H ($/mt) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Platts was second with 32.2% and Asia was in third at 15%, according to US Trade Commission data. China imported 270,222 mt of US-origin SM in January-October 2015, or 8.7% of its total imports, according to customs data. The share has almost doubled since 2014, when US supply accounted for 4.7% of China s SM imports of 144,601 mt. But market participants are cautious after seeing recent weakness in China s macroeconomic data, which could lead to weaker downstream markets and lower demand from the manufacturing sector using EPS, GPPS, HIPS and ABS. China s PMI has been contracting since February, when it recorded a level of The November figure was 48.6, up from 48.3 in October, but still below 50, which indicates a sluggish manufacturing sector. Fluctuating upstream crude oil futures and an impending interest rate hike in the US are also adding to uncertainties in Asian commodities markets. SM prices this year increasingly depend on the upstream crude oil market, China manufacturing sector and global economies, a Singapore-based market source said. Thus it will likely be a difficult year. But there is still growth momentum to strengthen SM prices. Michelle Kim, mihee.kim@platts.com; edited by Meghan Gordon, meghan.gordon@platts.com ASIAN ISOMER-MX SUPPLY/DEMAND SCENE TO CHANGE WITH CAPACITY BOOST IN H Styrene Paraxylene Benzene Isomer-MX Toluene Higher premiums for term cargoes in 2016 are expected to put pressure on PX producers, who struggle with weak PX-isomer-MX price spreads. But fresh capacity would ease a fundamentally tight market. Tight supply, at least for the first half of 2016, is the consensus regarding the Asian isomer-grade mixed xylenes market. However, the second half of 2016, will bring about a change to the demand-supply situation as new capacity comes on stream, according to Asian trading sources. New capacity to be added in H At least 1.43 million mt/year of new production capacity of isomer-mx is expected to come online this year, kicking off with two plants starting up in Japan by June-July

7 TonenGeneral will bring on stream a 230,000 mt/year isomer- MX plant at Chiba, sources close to the company said, while Showa Shell Sekiyu will be starting up a 200,000 mt/year plant at Yokkaichi. However, the largest addition of capacity will come by early Q4, when Hyundai Chemical, a joint venture between Hyundai Oilbank and Lotte Chemical, brings online a 1 million mt/year condensate feedstock-based isomer-mx plant at Daesan. The offtakers of the isomer-mx produced at the Daesan plant would be South Korea s Hyundai Cosmo Petrochemical and Lotte Chemical, both unintegrated PX manufacturers. Weak PX-MX spread likely to stay The price spread between paraxylene and isomer-mx has been dire for unintegrated PX manufacturers for much of 2015, well below the breakeven range of $180-$230/mt that such producers seek. As of December 11, the spread between the PX CFR Taiwan/ China marker and the isomer-mx FOB Korea marker was assessed at $123/mt. As a consequence of the weak PX-isomer-MX spread, unintegrated South Korean PX producer Hyundai Cosmo Petrochemical is running its 800,000 mt/year No. 2 PX plant in Daesan at 80% of capacity -- a level it has been operating at for much of Adding further pressure to the unintegrated PX producers are the results of the 2016 isomer-mx term negotiations. The term premium was settled at $10/mt to the average of Platts FOB Korea assessments, an increase of $6/mt from the premium in On the other hand, PX term negotiations for 2016 are expected to largely remain around the same level as The current discount is $2/mt from the Platts CFR Taiwan/China marker. Looking ahead, the onset of the summer season is likely to see competing demand for isomer-mx as a blending component in the gasoline pool, particularly in Japan, China and the US. Healthy blending margins during the driving season in the US make it more profitable to import isomer-mx/px for PTA production rather than extract isomer-mx out of the blend pool. Asian traders have already indicated that the supply tightness will extend to the PX markets as well during the season, as some spot cargoes are shipped to the US from Northeast Asia. A South Korean source summed up the market s expectation by saying that it remained to be seen if the addition of the new capacity would ease pressure on a fundamentally tight market. Higher premiums put focus back on China domestic Solvent-MX Asian solvent-grade mixed xylenes will suffer from tighter supply in the market in 2016, following the cessation of production of solvent-mx at South Korean producer LG Chem s plant in Daesan in August 2015 due to technical problems with the MX unit. The Daesan aromatics plant had the capacity to produce 24,000 mt/year of solvent-mx. Indicative of the reduced supply as compared to 2015 was the $3/mt increase in solvent-mx term contract premiums to $8/mt above the monthly average of Platts FOB Korea assessments for 2016, as settled by South Korean producers Lotte Chemical and LG Chem in late November. South Korean traders, on the other hand, have indicated that the increase in premiums would make it harder for traders and end-users in China to negotiate term contracts with them for The 2015 premium in the contracts we ve negotiated with the Chinese players is $2/mt to the Platts CFR China marker, said one South Korean trader. With the increase in the FOB Korea contract premium, the spread between the two markers has to increase for us to be able to even breakeven, but that might mean fewer term contracts settled with the Chinese traders, who are against a higher spread, the trader added. The FOB Korea-CFR China spread is currently at $36/mt, and has been at that level for most of 2015, reflecting the higher freight charges for small solvent-mx cargo sizes -- 1,000-2,000 mt -- and the cost of opening a 90-day letter of credit. However, traders and producers ruled out selling South Koreanorigin cargo to an alternative region, like South East Asia, with one producer citing the high South Korea-SEA freight costs and the small cargo quantities in demand in the region, which made it unprofitable to sell there. Chinese demand will continue to remain integral to the solvent-mx market, although the higher premiums in 2015 will put the focus on how competitive the domestic Chinese market will be as compared to the dollar-denominated import market in On the turnaround front, the end of the first quarter will see two of the major South Korean producers shutting down their plants for maintenance. Yeochun NCC plans to shut its No. 2 aromatics plant at Yeosu on March 10 for 30 days of regular maintenance, while Lotte Chemical plans to shut its benzene-toluene-mixed xylenes plant at Yeosu in April for a 30-day turnaround. LG Chem has no turnaround scheduled at any of its plants in 2016, a source close to the company said. Rohan Menon, rohan.menon@platts.com; edited by Geetha Narayanasamy, geetha.narayanasamy@platts.com 7

8 GLOBAL AROMATICS PRICES Act quickly in today s fast paced aromatics marketplace. Use Platts impartial petrochemical price assessments. Make informed pricing decisions based on Platts coverage of regional and global markets. Platts provides you with: Global pricing term and spot aromatics assessments for Europe, the Americas and Asia. Core coverage Benzene, Orthoxylene, Paraxylene, Styrene Monomer, Methanol, Ethanol, MTBE, ETBE, Toluene, Mixed xylenes - including solvent and virgin xylenes. Pricing charts depicting historic and current aromatics market activity. Weekly reports global aromatics prices, news and market commentary. Access anywhere access to Platts information on your desktop, tablet or smartphone. 5 REASONS TO CHOOSE PLATTS 1. Impartial and independent We have no vested interest in the market. 2. Open and transparent Our price discovery process is designed to reflect true market value. 3. Upstream integration By operating across the energy value chain we have the full picture. 4. IOSCO compliant We go beyond the required reporting standards. 5. Global We re connected to every market. For more information on Platts price assessments and market insight, visit: 8

9 CAPROLACTAM DEMAND LIKELY TO REMAIN WEAK IN 2016 AMID SUPPLY GLUT Amid weaker crude prices, a Q4 traditional pickup in caprolactam demand failed to materialize while benchmark contract prices set price trends in spot market. New capacity in China will add to a supply glut in Asia. Asian caprolactam has remained weak in the fourth quarter of 2015 with prices falling 14-15% from Q3 amid lack of demand for fiber products such as yarn and nylon ahead of winter. The average price in Q4 so far was $1,326/mt CFR Far East Asia and $1,346/mt CFR South East Asia, compared with $1,554/mt CFR Far East Asia and $1,574/mt CFR South East Asia in Q3. Usually demand picks up in Q4, but in 2015, a weak global economy has led a majority of caprolactam buyers to maintain their inventories at a low level, a Taiwanese seller said. Spot activity was subdued with monthly contracts negotiations taking on a larger role in setting a direction for price trends in the spot market. Ube Industries and Sumitomo Chemical settled the November contract prices with their customers at $1,310-1,330/mt CFR Far East Asia, down $ /mt from October CPs. The market is expected to be over-supplied in 2016 amid new capacity of about 800,000 mt/year coming online in China. These include plants belonging to Risun, Lubao, Sanding, Luxi Petrochemicals, Shenma and Zhonghua, all with a capacity of 100,000 mt/year, as well as Henjia Hexian s 200,000 mt/year facility. As a result, China, which is a net importer currently, was likely to become self-sufficient in caprolactam in 2016, a northeast Asian seller said. Other markets in Asia are very small and require only a small monthly fixed volume and if China stops buying, suppliers in Japan and Taiwan may have to reduce their capacities as there are not enough buyers in a market largely oversupplied, a northeast buyer added. Serena Seng, serena.seng@platts.com; edited by E Shailaja Nair, shailaja. nair@platts.com OVERSUPPLY PUTS DOWNWARD PRESSURE ON SPOT PRICES ($/mt) Caprolactam CFR Southeast Asia Caprolactam CFR Far East Asia 1250 Dec-13 Apr-14 Aug-14 Dec-14 Source: Platts Apr-15 Aug-15 Dec-15 PHENOL GAINS LIKELY TO BE CAPPED BY BEARISH FUNDAMENTALS IN 2016 As new solvents plants come online, the phenol market faces weak demand as imports to China fall amid an economic slowdown. Phenol prices in Asia are likely remain supported until the first quarter of 2016 as plants are shut and operating rates cut due to low production margins. However, any significant rise in prices will be tempered by lackluster demand, new capacity additions in the region, as well as macroeconomic weakness globally, industry sources said. CFR China phenol was assessed at $835/mt on December 8, down 6.7% from January 6 while the CFR South East Asia marker fell 12.82% during the same period to $850/mt. The breakeven is typically $250/mt above the price of feedstock benzene and was estimated at $854/mt on December 8. Platts assesses CFR phenol prices on a weekly basis. Short term supply tightness Low phenol prices have prompted many producers in Asia to trim run rates or even shut solvent plants temporarily, sources said. Currently, producers are reducing operating rates further and we have lowered the run rate at our plant to under 60% because of tepid demand, a producer in North East Asia said. The overall situation is not good, another producer in Asia said, adding that the company s solvents plant in China had been shut since mid-september because of challenging market conditions. A line at Sinopec s Yanshan solvents plant was still shut and the restart date remained unclear, a source close to the company said on December 9. It was shut unexpectedly at the end of November, he said. Industry sources said they expected it to be restarted early January. Taiwan Prosperity Chemical Corp. shut its Kaohsiung solvents plant from December 20 for regular maintenance that will likely last until mid-january. China s Kingboard Chemical shut its Huizhou solvents plant on November 20, but is yet to restart. Sources said it might not be restarted before the end of 2015 or even The company could not be reached for comment. South Korea s LG Chem has reduced the operating rates of its solvents plants at Daesan and Yeosu to 18% of capacity, a source close to the company said. The plants were running at almost full capacity in September and at 80% through October, he said. However, a decision was taken to lower the run rates to 18% of capacity in the beginning of November due to the difficult market conditions, the source said. 9

10 Expectations of limited supply from the Mitsui Phenols Singapore plant, which has a nameplate capacity of 310,000 mt/year of phenol and 180,000 mt/year of acetone, after Shell s recent force majeure, will also support prices, sources said. Shell Singapore declared a force majeure on the supply of ethylene and propylene from its steam cracker at Pulao Bukom, industry sources said early December. The steam cracker has a production capacity of 960,000 mt/year of ethylene, 540,000 mt/year of propylene, 186,000 mt/year of butadiene and 276,000 mt/year of benzene. Bearish fundamentals Demand in the phenol-acetone market still remained low, sources said. Downstream demand continues to be weak, an industry source said. Taiwan s China Petrochemical Development Corp. plans to extend the shutdown of its 200,000 mt/year caprolactam and cyclohexanone plants at Kaohsiung to days from the initially planned days, a source close to the company said. China s phenol imports plummeted by 17.2% to 141,280 mt in the first nine months of 2015 compared with the same period in 2014, customs data showed. Chinese imports in 2016 are likely to drop further due to diminishing demand on continued weakness in the economy as well as rising self-sufficiency as new plants start up. Shanghai Sinopec Mitsui Chemicals, CEPSA Quimica and Formosa Chemicals & Fibre Corp. have all brought new plants online in The three plants, which have a combined phenol production capacity of 800,000 mt/year, have raised the country s total production capacity to around 2.5 million mt. India is likely to see a rise in demand in 2016 due to expansion downstream. However, imports would probably remain steady, sources said. Phenol imports, which were estimated at around 140,000 mt over January-July could total 230,000 mt by the end of In 2016, imports could rise by an additional 20,000-25,000 mt, sources said. PHENOL, ACETONE PRICES FALL IN 2015; YEAR END TIGHTNESS GIVES SUPPORT ($/mt) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Platts Phenol CFR SE Asia weekly Phenol CFR China weekly Acetone CFR SE Asia weekly Acetone CFR China weekly But supply would not be a problem due to new capacity addition and expansion in Asia and this would put a lid on price rise, a buyer in India said. New capacity in 2016 PTT Global Chemical planned to startup its new solvents plant at Map Ta Phut, Thailand, in January, a company source said. The plant is part of the Phenol II project and will likely add 250,000 mt/year of phenol and 155,000 mt/year of acetone to PTT s existing capacity --of 200,000 mt/year of phenol and 124,000 mt/year of acetone at Map Ta Phut. South Korea s Kumho P&B Chemicals plans to startup its new No 4 solvents plant at Yeosu in May or June The plant will have a production capacity of 300,000 mt/year of phenol and 180,000 mt/year of acetone. Rabigh Refining and Petrochemical Co. (Petro Rabigh), a joint venture between Japan s Sumitomo Chemicals and state-owned Saudi Aramco, will start up its new phenolacetone plant in June 2016 as part of the second phase of expansion, industry sources said. The new plant will be able to produce 275,000 mt/year of phenol and 160,000 mt/year of acetone. Macroeconomic weakness would also weigh on the phenolacetone market in 2016, sources said. GDP growth in China slowed to 6.9% in the third quarter of 2015, the lowest in six years, data released in October showed. The International Monetary Fund forecast in September that the global economy would grow at 3.1% in 2015 and by 3.6% in Both forecasts were 0.2% points below its July forecast. Surabhi Sahu, surabhi.sahu@platts.com; edited by E Shailaja Nair, shailaja.nair@platts.com BLENDSTOCKS MTBE TO STAY BEARISH IN 2016 AS MORE CHINA CAPACITY COMES ONLINE Asian oversupply is forecast to grow on China startups and Mideast cargoes while alternate blendstocks are foreseen to affect gasoline blending demand. In the meantime, MTBE continues to be not accepted as a gasoline additive in several countries. Chinese export volumes will be pivotal to the Asian MTBE market in 2016 as overall demand in the region is expected to remain stable amid pockets of firm demand, said industry sources. While gasoline demand will likely experience slower but steady growth, a trader based in Singapore said existing MTBE supply from various origins is sufficient to cover regional blending requirements, unless strong demand for gasoline persists for an extended period. 10

11 China s Yantai Wanhua started its 720,000 mt/year MTBE plant in Shandong in September but was only able to supply on-specification MTBE in early November. The market expects Wanhua to export more cargoes in 2016, as most of its current production has been sold in the domestic market so far. Another 750,000 mt/year of MTBE capacity is expected come online in Nanjing in H at a joint-venture plant between Sinopec Jinling and US-based Huntsman Corp. A company source declined to say when the plant will start. With an additional 1.47 million mt of capacity from , China s total MTBE capacity will expand to more than 6 million mt/year. Although market participants expect Sinopec to consume the volume internally, this means one less major consumer to digest existing supplies in China. An active MTBE trader said any excess volumes in China will likely be sold to regional buyers, as east-to-west arbitrage movements are frequently restricted by narrow price spreads. Apart from Chinese cargoes, Asia will also receive more MTBE from the Middle East in 2016, after Emirates National Oil Co. entered the spot market in H Singapore imported about 1 million mt of MTBE in 2014, from regular suppliers such as SABIC and QAFAC from the Middle East and Taiwan s Formosa Petrochemical Corp. Will China be a big exporter? One key factor in China s MTBE demand is the wide availability of cheaper alternative blendstocks, such as toluene. The RON value for MTBE is 119, versus 113 for toluene. The FOB Korea toluene marker has averaged $666.31/mt year as of December 4, down 35.8% year on year, while the domestic China toluene price was around Yuan 5,299/mt ex-tank, or $694.76/mt on an import-parity basis. In comparison, the FOB Singapore MTBE marker has averaged $683.38/mt, down 33% year on year. That could leave Chinese MTBE producers with a need to export supply, with Southeast Asia and South Korea as likely targets as both are active importers of spot MTBE in Asia. South Korea imported about 130,000 mt of MTBE in January- November, with only 7,000 mt from China. The overall imports were much higher than the typical 100,000 mt/year because of massive turnarounds in H A South Korean trader does not expect arbitrage opportunities from China, as only two South Korean plants are set for maintenance in He said supply and demand there were generally balanced. Another factor that can affect China s MTBE exports is an increase in blending activity from independent teapot refineries in the Shandong area. In 2015, the Chinese government granted eight teapot refineries licenses to import crude without going through state-owned oil companies, with gasoline as one of their main outputs. In bid to further deregulate the Chinese oil industry, the Ministry of Commerce might allocate the independent refiners export quotas for 3 million mt of gasoline and 5 million mt of gasoil in That could increase competition in the Asian gasoline market, with Southeast Asia as a key target of China s rising exports, another trader said. Demand might not digest supply glut Several gasoline traders expect Asian gasoline supply to be ample in 2016 as refineries continue to run at high rates to cash in on firm margins. The gasoline crack the spread between physical 92 RON gasoline prices and front-month ICE Brent crude futures -- averaged $12.36/b year as of December 4, up 46% year on year. The 2014 average was $8.46/b. Some growth in demand for gasoline imports is expected in 2016 from Australia, India, the Middle East and Eastern Africa. This could help offset excess gasoline cargoes in the region as Indonesia might reduce import volumes after the Trans- Pacific Petrochemical Indorama 100,000 b/d condensate splitter in Tuban, East Java, started in November and Pertamina s new 62,000 b/d residue fluid catalytic cracker at the 348,000 b/d Cilacap refinery started producing gasoline late They can produce up to 60,000 b/d and 30,000 b/d of gasoline, respectively. However, as importing countries such as Australia and India do not accept MTBE as a blending additive, it is uncertain the extent to which firm gasoline demand will help support the Asian MTBE market. Apart from gasoline blending, MTBE is also used as a feedstock for chemical production, mainly for methyl methacrylate and natural rubber. Downstream MMA producers in Asia expect demand to remain weak to stable amid the global economic slowdown. As prices will likely experience slow recovery in 2016, producers do not expect additional spot demand for MTBE on top of their term volumes. MMA constitutes less than 10% of the entire demand for MTBE, and producers require mt of MTBE to produce 1 mt of MMA. Genevieve Soong, genevieve. soong@platts.com; edited by Meghan Gordon, meghan. gordon@platts.com 11

12 ASIAN TOLUENE DEMAND EXPECTED TO BE STEADY IN 2016 In the new year, Chinese solvent demand is expected to boost toluene prices while gasoline-blending activities may support demand. Amid those factors, China could remain the largest buyer in Asia. Asian toluene demand is expected to be stable to firm in the first quarter of 2016, driven by increased buying interest from China s downstream solvent sector as construction picks up after the Lunar New Year holiday. Asian toluene prices were stable to softer in the fourth quarter. The FOB Korea marker averaging $666/mt as of December 3, up $3/mt from Q3, amid stable demand, and the CFR China marker fell 1.3% from Q3 to $627/mt in Q4, tracking weaker domestic China prices. About 37% of China s toluene consumption typically goes into the solvents sector, with 34% going into benzene and xylenes production and 21% into gasoline blending, a Chinese toluene buyer said. China produced 5.94 million mt of toluene in January-August, and supply is expected to remain stable in Q1 with no planned maintenance shutdowns except during Lunar New Year. ASIAN TOLUENE PRICES FALL YEAR ON YEAR ($/mt) Dec-13 Source: Platts Toluene FOB Korea Toluene CFR China LC 90 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Elsewhere in Asia, smaller pockets of demand could emerge ahead of the March-April gasoline blending season for South Korean exports to the US and Europe if FOB Korea prices remain competitive, a South Korean seller said. In January-September, South Korea exported 16,752 mt of toluene to the US, Korea Customs data showed. Dec-15 China may remain the largest buyer of South Korean exports in 2016 if its imports hold steady. In January-September, China imported 164,000 mt of toluene from South Korea, according to China customs data. Serena Seng, serena.seng@platts.com; edited by Meghan Gordon, meghan.gordon@platts.com For more information, please visit us online or speak to one of our sales specialists: support@platts.com NORTH AMERICA PLATTS8 (toll-free) (direct) EMEA +44-(0) LATIN AMERICA ASIA-PACIFIC RUSSIA Platts, McGraw Hill Financial. All rights reserved. 12