Asian naphtha crackers eye rate cuts amid ethylene slump

Ethylene hit a fresh seven-month low of $930-1,000/tonne ( 781-840/tonne) CFR (cost and freight) northeast Asia last week, dragged down by ample supply from the Middle East and limited tank space, according to ICIS pricing.

Currently the ethylene balance is tight in Japanbut after the turnaround season, there is the possibility of reducing production rates, said a key producer based in the country.

Eight crackers in Japan are undergoing maintenance this year, which would be completed by the end of August, ICIS pricing data showed.

In southeast Asia, Chandra Asri the sole cracker operator in Indonesia plans to cut the operating rate at its 600,000 tonne/year plant in Cilegon to 80% in July, a company source said. The cracker is operating at around 90% this month.

Naphtha crackers in Asia had been running at high rates of 90-100% in the first half of this year due to robust variable margins of more than $400/tonne, helped by a strong performance in the olefins markets. But the sharp ethylene price slump since second half May had eroded their earnings.

Ethylene margins slumped 38.7% or $134/tonne to $212/tonne in northeast Asia last week, according to data from ICIS margins.

"It looks like conditions will be more difficult going forward especially from the economic point of view," said an olefins trader based in Shanghai, referring to concerns that the debt crisis in Europe and measures by the Chinese government to tighten credit lending in the country would hurt consumer demand and affect the petrochemical industry, which provides the raw materials for manufacturing end-products such as textiles and shoes for export.

Amid the current bearish market conditions, talks to export one to two June loading ethylene cargoes from China have hit a snag due to a wide buy-sell gap, market sources said.

With naphtha at more than $650/tonne, we are making losses selling ethylene below $900/tonne, said a producer in the country, adding that its selling target was $950-1,000/tonne FOB (free on board) China.

On a positive note, derivative markets such as styrene monomer (SM) and polyethylene (PE) that had borne the brunt of the spike in ethylene values earlier in the year were getting some respite from the sharp correction.

Now our derivative margins seem ok because C2 dropped so much, said the source from Chandri Asri.

Maybe we will consider restarting our SM (styrene monomer) train, he said, adding that the company had shut a 100,000 tonne/year line since April due to poor economics.

Standalone high density PE margins in northeast Asia jumped 40% to $110/tonne last week, data from ICIS margins showed.