A.D. Koen
Gulf Coast News Editor
Measures of current petrochemical supply and demand trends presage weak worldwide markets in the early 1990s.
A sluggish economy persisting as planned capacity additions continue to come on line will rein utilization and keep product prices soft.
Petrochemical industry profitability is likely to suffer through first half 1991. Producers posted mixed earnings results in fourth quarter 1990 when feedstock costs soared in the fourth quarter as a result of the Persian Gulf crisis. World ethane prices jumped to as much as $2/gal from $1.43/gal before the crisis, yet ethylene climbed only 23.7% to 29/gal in the period.
As feedstock prices slipped late in the quarter, producers were able to pass through costs enough to sustain precrisis margins for some derivatives, although basic petrochemicals generally suffered.
Expectations that feedstock costs would soar out of sight indefinitely spurred a big inventory buildup. As the world economy continues to lag, and producers dispose of inventories, margins will remain weak, especially through the second quarter.
MARKET OUTLOOK
An overall pattern of steady world economic growth through 2000 gradually will spur demand in all petrochemical markets. Product prices are expected to firm again once demand picks up and capacity utilization increases.
At the same time, manufacturers will try to cut losses by trimming feedstock purchases and working off inventories of high cost feedstocks.
In that environment, manufacturers with ready access to low cost petrochemical feedstocks will have a decided advantage.
Passage of amendments to the Clean Air Act (CAA) in the U.S. last year has set the stage for significant supply imbalances within the refining industry. Effects will be less severe on petrochemical markets and will occur later in the decade. An exception is the supply squeeze expected for the gasoline oxygenate methyl tertiary butyl ether and its feedstock, methanol (OGJ, Mar. 25, p. 26).
Throughout the 1990s, worldwide economic activity is expected to grow, with the greatest potential growth in developing nations.
In the 1990s, petrochemical demand in East Asia will grow two to three times faster than in the rest of the world, predicts Chem Systems Inc. (CSI), Tarrytown, N.Y.
CSI says construction of new petrochemical capacity in East Asia is proceeding at a pace that will limit the region's imports, which already account for more than 50% of world trade in some products.
It notes plans in East Asia to build 18 ethylene plants by the mid-1990s, but CSI contends lack of financing is likely to limit construction to about 15 plants.
Depending on the strength of East Asia's economy and the rate of petrochemical commercialization in the region, CSI says supply and demand could be in balance by 2000.
Petrochemical demand growth also will be spurred by product substitution, as consumer products derived from Petrochemicals continue to make inroads against such other materials as paper, wood, and other plastics. Of special note are high performance, or high impact polymers, that are expected to show the strongest growth.
As the industry continues its campaign to allay public suspicions about environmental effects of petrochemical products, that will encourage substitution.
KEY TO PROFITABILITY
In the 1990s, capacity utilization will be the key to petrochemical industry profitability, CSI says.
CSI's Bruce H. Pickover believes operating rates in 1991-93 will remain lower than the peak of activity in 1988 but not as low as in 1982.
In 1982, for example, an average of 62% of world ethylene capacity was utilized vs. 91% in 1990. Pickover sees ethylene utilization at an average 88% by 1992.
Pickover also puts respective average operating rates in 1982, 1990, and 1992 at 76%, 88%, and 87% for high density polyethylene (HDPE), 72%, 84%, and 85% for polypropylene (PP), 74%, 90%, and 88% for styrene, and 65%, 91 %, and 90% for vinyl chloride monomer (VCM).
EFFECT OF OIL PRICE
CSI predicted prices of commodity petrochemicals ethylene, propylene, and benzene, under three oil price scenarios.
In all cases, basic petrochemical prices fall early in the decade and rebound later.
If oil prices this year average $23.50/bbl and increase to $37/bbl in current dollars by 2000, average ethylene prices are expected to bottom out in 1993 at about 16/lb and increase to almost 35/lb by 2000. In this base case, propylene prices would fall from nearly 23/lb in 1991 to 17/lb in 1992 then increase to more than 33/lb in 2000. Benzene prices would fall from $1.65/lb in 1991 to less than $1.40/lb early in 1992 then increase to more than $2.25/lb by 2000
In CSI's high price scenario, oil prices would jump to $35/bbl, fall to less than $25/bbl before 1995, and then increase to $33/bbl by 2000. Ethylene prices would fall to less than 20/lb in 1993 and increase to 39/lb in 2000. Propylene prices would plateau early in 1992 at about 28/lb, fall to 23/lb late that year, and climb to nearly 39/lb in 2000. Benzene prices would reach $2.05/lb in 1992, slide to $1.70/lb in 1993, and increase to nearly $2.70/lb in 2000.
In the low case projection, oil prices would begin 1991 at $17/bbl and increase to $26/bbl in 2000. Ethylene prices would fall to less than 16/lb by 1993 and increase to 28/lb in 2000. Propylene would fall to less than 12/lb in 1991, increase to 15/lb in 1993, and continue climbing to 24/lb in 2000. Benzene prices would stay below $1.20/lb through 1991 and increase to more than $1.90/lb in 2000.
ETHYLENE
WORLD ETHYLENE
Expectations of weak short term economic growth and announcements of sizable additions to capacity suggest low utilization rates are likely in world ethylene and key derivative markets in the early 1990s.
Companies have announced plans to build 50 new olefins plants. Of that total, 17 steam crackers will be added in the Far East, increasing capacity of the region to 8 metric million tons/year from 2.7 million tons/year. The U.S. will add 4.6 million tons/year of capacity and Western Europe 4 million tons/year.
If all announced plants are built, world ethylene capacity will increase by almost 22 million tons/year to 80.2 million tons by 1995, according to projections by Exxon Chemical Co.
At that level, questions arise regarding the adequacy of world naphtha supplies, Exxon's Samuel M. Weinberger said at the Chemical Management & Resources Association's winter conference in San Antonio in February.
As ethylene capacity grows through the decade, polyethylene is expected to increase its market share, Weinberger said. During the 1990s, polyethylene's share of ethylene markets will increase to 56.3% from 53.6%, accounting for about 63% of demand growth.
According to Exxon's projections, average utilization of world ethylene capacity in 1995 will be about 85%-lower than that in North America.
Based on anticipated demand and capacity growth in the Far East, U.S. exports to China, Japan, and other Asia-Pacific countries are likely to decline, despite an expected 4%/year economic growth in the region.
Weinberger said producers in the Middle East could continue supplying Asian markets with ethylene derivatives if they expand capacity as planned.
U.S. ETHYLENE
Evidence suggests U.S. ethylene and derivative producers are in for a tough decade, Weinberger said.
Exxon projects that U.S. net ethylene exports by the end of the 1990s could decline to less than 1 billion lb/year. In 1989, U.S. net ethylene exports were about 3 billion lb.
Changes in hydrocarbon feedstock cost and refinery processing also will affect ethylene performance. Higher natural gas prices and new demand from announced U.S. additions requiring ethane feedstock could tighten ethane supplies and drive prices up, Weinberger said.
CSI projects U.S. ethylene demand will increase to 48.7 billion lb in 2000 from 41.7 billion lb in 1995 and 36.6 billion lb in 1990, an average growth rate of 2.9%/year.
Polyethylene (PE) demand will increase by an average 3.2%/year through 2000, climbing to 25.9 billion lb in 2000 from 21.6 billion lb in 1995 and 18.6 billion lb in 1990, Pickover said.
PROPYLENE
PROPYLENE DEMAND
Global propylene demand is projected to increase to 38.3 million metric tons by 1995 from 28.9 million tons in 1989, Roger C.M. Longley said at CSI's petrochemical conference. That puts average growth rate at 4.7%/year.
Demand will grow most quickly in the Far East, to 4.8 million tons in 1995 from 2.3 million tons in 1989, Longley said. Latin American propylene demand will nearly double during the period, increasing to 2.3 million tons from 1.2 million tons.
Together, the U.S. and Western Europe in 1995 still will command 57.3% of world propylene markets, consuming 11.2 million tons and 10.8 million tons, respectively.
Japan by 1995 will increase consumption to 4.5 million tons, with other regions accounting for 1.4 million tons, Longley said.
PROPYLENE SUPPLY
Europe's first propane dehydrogenation plant in late 1991 will start producing 250,000 tons/year of propylene at Antwerp, Belgium. By 1995, refineries in western Europe will be producing as much as 2.5 million tons/year.
Meanwhile, new propylene capacity in developing regions is likely to alter the balance of world propylene trade, Longley said.
By 1995, Saudi Arabia and South Korea naphtha cracking projects will add significant propylene capacity. Propane dehydrogenation plants in Antwerp, South Korea, Mexico, Thailand, and Malaysia by 1995 will add nearly 750,000 tons of capacity.
With new regions increasing propylene production, U.S. market share will drop to 28% and western Europe to 23% by 1995.
The U.S. will cut exports of polypropylene but maintain propylene monomer exports of about 200,000 tons/year, Longley predicted.
BENZENE
BENZENE SUPPLY/DEMAND
Slumping benzene demand-down about 2% in the U.S. and 1.5% worldwide-will turn around by yearend, DeWitt & Co. Inc.'s William P Barry told the consultants petrochemical review in Houston last month.
Following recovery beginning late this year, world benzene demand will grow at an average 3.6%/year, to 31.7 million tons in 2000 from 22.4 million tons in 1990, Barry estimated.
At the same time, world capacity is forecast to increase to 36.8 million tons/year late in the decade from 22.4 million tons/year in 1990. During the 1990s, DeWitt expects utilization of world benzene capacity to average about 76%.
In terms of volume, ethylene plant expansions will lead world increases in benzene capacity through 1996, Barry said. In 1996, ethylene plant construction will hike benzene capacity to 12.45 million tons, an increase of 2.69 million tons/year from 1990's level.
Worldwide benzene capacity from reformers will increase to 11 million tons/year by 1996 from 8.44 million tons in 1990. By 1996, world disproportionation benzene capacity will reach 2.25 million tons/year, up from 1.33 million tons this year.
Benzene additions in western Europe and the U.S. will begin leveling off in 1994 and hold steady through 1996, Barry said. Western European capacity will settle at about 7.9 million tons/year, the U.S. at about 9.8 million tons/year.
Ethylene expansions will account for about 850,000 tons/year of western Europe's 1.1 million ton increase. Most of the 1 million ton/year increase in U.S. benzene capacity will come from hydrodealkylation and disproportionation processes.
No significant increases of Eastern Europe's benzene capacity are expected by 1996.
BENZENE IN THE U.S.
U.S. CAA changes will alter relationships in world benzene supplies.
Legislated changes in gasoline formulation will lower catalytic reformer operating rates and severities in the U.S.
CAA amendments require gasoline benzene content to drop to 1 vol % from an average of 2 vol % and total aromatics to 25 vol % from about 32 vol %.
Because of those cuts, U.S. benzene production from reformers beginning in the mid-1990s will decline. Benzene supply from other sources will be sufficient to meet U.S. demand until about 1995 but not through the latter half of the decade.
For example, DeWitt projects U.S. benzene production in 1995 will be reduced by 550,000 tons by lowering reformer utilization to 59% from 68% in 1990. But about 350,000 tons will be made up by hydrodealkylation and disproportionation output.
To meet projected U.S. benzene demand of 7.8 million tons by 1998, reformer utilization will have to be increased to 62% while maintaining utilization of hydrodealkylation/disproportionation capacity at 76% and ethylene benzene capacity at 77%.
In 1990, the U.S. produced about 6.24 million tons of benzene at utilization rate of about 70%.
OTHER REGIONS
About 41% of increased world benzene capacity through 1996 will occur in the Far East, Barry said.
Planned expansions there of 3 million tons/year will inCrease capacity to 8.5 million tons/year. That in turn will boost the region's share of world capacity to 23% from 19%.
With a steady 4%/year growth through 2000, the Far East also is expected to pace world benzene demand.
Japan will lead the region's increase in benzene capacity, with several announced projects adding 1.4 million tons/year by 1996. South Korea is expected to add 750,000 tons/year of annual benzene capacity in the same time span. Thailand plans by 1994 to increase benzene capacity by 230,000 tons/year, Taiwan 200,000 tons/year, and Singapore 175,000 tons/year, Barry said.
Asian ethylene plants will add more than 1 million tons/year of benzene capacity during the period, while reformer expansions will increase by 93% to about 2 million tons/year.
War in the Middle East has prompted DeWitt to scale down expectations for benzene expansions there after 1993. Now, only two projects in Saudi Arabia totaling 540,000 tons/year and a 350,000 ton/year expansion at Iran's Bandar Khomeini complex likely will proceed, Barry said. Previously, DeWitt had expected 1.3 million tons/year of new capacity to increase the region's share of world capacity to 5% from 2%.
STYRENE
STYRENE MARKET OUTLOOK
World styrene markets approached 30 billion lb in 1990, with more than 100 manufacturers. During 1991-2000, markets could achieve growth of 4.3%/year, according to a model developed by Chevron Chemical Co.
Relative to other materials, styrene prices are likely to improve during the decade, Chevron's Eric Tibbetts reported at DeWitt's petrochemical review.
He bases his conclusion on four variables:
- Relationship between world gross domestic product (GDP) and styrene consumption.
- Growth rate of world GDP.
- Material substitution based on comparative pricing.
- Intensity of styrene usage.
Since 1974, Tibbetts said, statistical correlation indicates changes in world GDP predict 96% of change in styrene demand. Chevron also found a strong correlation between world per capita income and styrene growth.
By comparing change in world GDP with growth of styrene markets, Chevron calculated a styrene multiplier. During 1985-90, the multiplier was 1.3.
With steady economic growth in the 1990s, improvement in relative pricing, growing demand for styrene based products, and emerging production in such countries as Indonesia, Malaysia, and Thailand, the styrene multiplier will average 1.25 during the decade.
Chevron found no reliable predictive correlations between utilization of styrene capacity and growth rate of markets or between styrene prices and demand.
Regarding material substitutions, Tibbetts said that when competitive products perform similarly, the significance of composition decreases in importance and price becomes a critical issue.
He noted high polystyrene prices early in the 1980s resulted in low rates of market growth. As prices dipped about mid-decade, higher growth rates occurred. And as prices increased recently, rate of market growth slowed again.
Chevron's analysis of historical styrene markets uncovered a correlation between changes in styrene consumption and per capita income, Tibbetts said.
The company found that, as incomes increase at levels below $4,000-as in Asia and Latin America-consumption of styrene increases rapidly. When per capita income surpasses $4,000-as in the U.S., Western Europe, and Japan-the amount of income consumed for each additional dollar appears to remain constant, he said.
Chevron concluded that, as per capita incomes in Asia and Latin America increase, styrene consumption also will receive a significant boost, Tibbetts said.
POLYSTYRENE
Global polystyrene market growth of 3.3%/year could lift utilization of world capacity to 94% in 2000, Dow Chemical U.S.A. estimated.
In North America, polystyrene operating rates aren't likely to exceed 90%, Dow's Jim Stoppert said at DeWitt's conference.
Dow projects polystyrene consumption in Asia will grow 4.5%/year during the 1990s, paced by applications in high end consumer electronics in Japan and South Korea and in basic products in China, Pakistan, and Indonesia.
Growth of durable products demand also will lead growth in U.S. polystyrene markets during the decade, averaging 3.1%/year, Dow said. Meanwhile, nondurables growth of 0.8%/year will hold overall U.S. market increases to 1.8%.
In western Europe, a market similar in maturity to the U.S., Dow forecasts 2.5%/year growth in polystyrene consumption.
Possibilities of large increases in the standard of living in eastern Europe-especially in eastern Germany-could stimulate pent up demand for appliances and more sophisticated packaging.
Stoppert said that inability of old, inefficient polystyrene units in eastern Europe to maintain historic levels of production has depressed consumption.
Copyright 1991 Oil & Gas Journal. All Rights Reserved.