The Urethane Blog

Everchem Updates

VOLUME XXI

September 14, 2023

Everchem’s Closers Only Club

Everchem’s exclusive Closers Only Club is reserved for only the highest caliber brass-baller salesmen in the chemical industry. Watch the hype video and be introduced to the top of the league: — read more

March 21, 2021

Gulf Coast Update

Post-freeze US petrochemical restarts progressing

Houston — Most US Gulf Coast petrochemical plants that were shut when sustained sub-freezing temperatures hit the region in mid-February have resumed operations or expect to restart by the end of March.

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Restarts have been gradual and operating rates remained reduced as producers have continually checked for any leaks in miles of pipe that was exposed to frigid cold for more than 72 hours. The industry remained focused on bringing crackers back online to produce ethylene needed to feed downstream plants that produce plastic resins and other products.

Numerous force majeures declared the week of Feb. 15 remained in effect as producers sought to clear backlogs of contract orders.

LyondellBasell CEO Bob Patel said at an energy conference March 16 that US resin supply could take the rest of 2021 to catch up to demand after weather-related setbacks in 2020 and the February freeze, particularly as already strong demand grows alongside economic recovery boosted by COVID-19 vaccinations becoming more available worldwide.

“As vaccines are rolled out, the year-over-year demand growth and the additional recovery-related growth in demand is still in front of us,” he said. “And supply is going to have to catch up all year long to meet this level of demand that we expect this year.”

Here is a rundown of fallout from the freeze:

FORCE MAJEURES

**Dow Chemical: Declared Feb. 19, on 2-ethylhexanol and butanol products from its Texas City, Texas complex

**Formosa Plastics USA: Declared Feb. 19 on US polyethylene

**BASF: Declared Feb. 19 on dioctyl terephthalate (DOTP), a plasticizer, at its Pasadena, Texas, site

**Westlake Chemical: Declared Feb. 19 on US caustic soda, chlorine, PVC and VCM; company has 2.9 million mt/year of US caustic soda capacity, more than 2 million mt/year of PVC capacity, 2.6 million mt/year of VCM; more than 2.26 million mt/year of chlorine capacity at five affected sites

**Formosa Plastics USA: Declared Feb. 18 on US PVC, 1.3 million mt/year of capacity at Point Comfort, Texas, and Baton Rouge, Louisiana, complexes.

**Dow Chemical: Declared Feb. 18 on multiple intermediate chemicals produced at plants in Deer Park, Freeport, Texas City and Bayport Texas, Hahnville, Louisiana, and Louisville, Kentucky; declaration includes vinyl acetate monomer (VAM), methyl methacrylate (MMA), glacial methacrylic acid (GMAA), butyl methacrylate (BMA), glycidyl methacrylate (GMA), 2-ethylhexyl Acrylate (2EHA), butyl acrylate (BA), and others; Dow informed South American customers

**Celanese: Declared force majeure Feb. 18 on multiple intermediate chemicals normally sold to customers in the US, Europe and the Middle East, including acetic acid, VAM, ethyl acetate and ethylene vinyl acetate (EVA)

**Total: Declared Feb. 17 on polypropylene produced at its 1.15 million mt/year La Porte, Texas, facility

**Formosa Plastics USA: Declared Feb. 17 on all chlor-alkali products

**LyondellBasell: Declared Feb. 16 on styrene monomer

**Vestolit: Declared Feb. 16 on PVC produced at its Colombia and Mexico plants on lack of upstream vinyl chloride monomer feedstock from US suppliers; plants have a combined 1.8 million mt/year of capacity

**Olin: Declared Feb. 16 on US chlorine, caustic soda, ethylene dichloride, epoxy, hydrochloric acid and other products produced at its Freeport, Texas, complex; ; on Feb. 18 Olin expanded the declaration in a separate letter to customers to include products made system-wide

**MEGlobal: Declared Feb. 15 on MEG produced at its Freeport, Texas, site

**LyondellBasell: Declared Feb. 15 on US polyethylene

**Flint Hills Resources: Declared Feb. 15 on polypropylene produced at Longview, Texas

**OxyChem: Declared Feb. 15 on US chlorine, caustic soda, EDC, vinyl chloride monomer and polyvinyl chloride.

**LyondellBasell: Declared Feb. 15 on US polypropylene

**INEOS Olefins and Polymers USA: Declared Feb. 15 on polypropylene

**OQ Chemicals: Declared Feb. 15 on US oxo-alcohols, aldehydes, acids and esters produced at its Bat City, Texas, operations

SHUTDOWNS

**Shell: two crackers with a combined 961,000 mt/year of capacity, Deer Park, Texas

**Nan Ya Plastics: cumulative 1.17 million mt/year of monoethylene glycol, Point Comfort, Texas

**CP Chem: 998,000 mt/year HDPE, Pasadena, Texas

**TPC Group: Houston site, including 544,310 mt/year butadiene unit

**CP Chem: three crackers with a combined capacity of 1.36 million mt/year of capacity, Sweeny, Texas

**INEOS: 1.89 million mt/year of ethylene capacity, Chocolate Bayou, Texas

**LyondellBasell: 1.134 million mt/year cracker, Corpus Christi, Texas

**Dow Chemical: 827,000 mt/year cracker, Orange, Texas

**Indorama Ventures: 435,000 mt/year EO, 358,000 mt/year MEG, Clear Lake, Texas

**LyondellBasell: 265,000 mt/year MEG, Bayport, Texas

RESTARTS

**Dow Chemical: Three crackers with a cumulative capacity of 3.68 million mt/year of capacity and two LDPE units with 552,000 mt/year and 186,000 mt/year HDPE, Freeport, Texas; 490,000 mt/year LLDPE and 390,000 mt/year HDPE, Seadrift, Texas

**Formosa Plastics USA, Point Comfort, Texas: 1.2 million mt/year cracker; 875,000 mt/year HDPE; 400,000 mt/year of LDPE; 465,000 mt/year of LLDPE; 798,000 mt/year of PVC; 1 million mt/year of caustic soda and 910,000 mt/year of chlorine; 753,000 mt/year of VCM; 1.478 million mt/year of EDC; two PP units with combined capacity of 1.7 million mt/year

**Westlake Chemical: 331,763 mt/year cracker, 249,475 mt/year chlorine, 274,423 mt/year caustic soda, 680,388 mt/year vinyl chloride monomer, 680,388 mt/year polyvinyl chloride, Calvert City, Kentucky

**Eastman Chemical: 730,000 mt/year ethylene capacity, Longview, Texas

**LyondellBasell: 3 million mt/year of ethylene capacity in Channelview and La Porte, Texas

**CP Chem: Two crackers with cumulative 2.53 million mt/year capacity, Cedar Bayou, Texas

**Lotte Chemical: 700,000 mt/year MEG, 1 million mt/year joint-venture cracker, Lake Charles, Louisiana

**Olin: Freeport, Texas complex, with 3 million mt/year of caustic soda and 2.73 million mt/year of chlorine capacity; 748,000 mt/year of EDC

**OxyChem: 544,000 mt/year cracker; 248,000 mt/year chlor-alkali; 680,000 mt/year EDC, Ingleside, Texas; Deer Park and Pasadena, Texas, 1.27 million mt in PVC capacity, Deer Park and Pasadena, Texas; 1.79 million mt/year of VCM, 580,000 mt/year chlor-alkali, La Porte, Texas

**Shintech: Freeport, Texas: 1.45 million mt/year PVC; one of three PVC lines shut down week of March 15 for a planned turnaround

**Indorama Ventures: 235,867 mt/year cracker; 1 million mt/year ethylene oxide/MEG unit, 238,135 mt/year propylene oxide unit, and 988,000 mt/year of MTBE capacity, Port Neches, Texas

**Westlake Chemical, 632,000 mt/year cracker, Lake Charles, Louisiana

**MEGlobal: 750,000 mt/year monoethylene glycol (MEG) plant, Freeport, Texas

**Nan Ya Plastics, two MEG units with a cumulative 1.17 million mt/year capacity, Point Comfort, Texas

**Dow Chemical: 300,000 mt/year MEG, Seadrift, Texas

**Indorama Ventures: 300,000 mt/year MEG, Clear Lake, Texas

**CP Chem, two crackers with a combined 1.9 million mt/year of capacity, Cedar Bayou, Texas

**CP Chem, 853,000 mt/year cracker, Port Arthur, Texas

**Braskem: 360,000 mt/year PP Freeport, Texas; 450,000 mt/year PP, La Porte, Texas

**Motiva Chemicals: 635,000 mt/year mixed-feed cracker, Port Arthur, Texas

**Shell: Norco, Louisiana, restarted two crackers with a combined 1.4 million mt/year of capacity

**Baystar Polymers: 408,000 mt/year HDPE unit at Bayport, Texas

**Flint Hills Resources: 658,000 mt/year PDH unit, Houston

**Dow Chemical: 750,000 PDH, Freeport, Texas

**ExxonMobil: Beaumont, Texas; 826,000 mt/year cracker; 225,000 mt/year HDPE; 240,000 mt/year LDPE; 1.19 million mt/year LLDPE with some HDPE capacity

**ExxonMobil: Baytown, Texas; three crackers with a combined capacity of 3.8 million mt/year; 800,000 mt/year PP

**Sasol: 380,000 mt/year EO/MEG, Lake Charles, Louisiana

**Formosa Plastics USA: 513,000 mt/year PVC, 653,000 mt/year VCM, Baton Rouge, Louisiana

**LyondellBasell: Lake Charles, Louisiana, joint-venture 470,000 mt/year LLDPE; 420,000 mt/year LDPE

PRICES

**The FD Mont Belvieu spot ethylene price has risen 53% since Feb. 12 to 55.50 cents/lb on March 19, while the FD Choctaw marker has risen 61% in that span to 58 cents/lb

**Spot polymer-grade propylene prices rose 27% from Feb. 12 to an all-time high of $1.24.75/lb FD USG when all three US PDH plants were shut – two on the freeze, one for a turnaround – but have since declined 32% to 84 cents/lb FD USG on March 19.

**US export PVC prices reached a fresh all-time high of $1,700/mt March 17 on deals done amid tight post-freeze supply and turnarounds.

https://www.spglobal.com/platts/en/market-insights/latest-news/petrochemicals/031921-factbox-post-freeze-us-petrochemical-restarts-progressing

March 21, 2021

Gulf Coast Update

Post-freeze US petrochemical restarts progressing

Houston — Most US Gulf Coast petrochemical plants that were shut when sustained sub-freezing temperatures hit the region in mid-February have resumed operations or expect to restart by the end of March.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience. Register Now

Restarts have been gradual and operating rates remained reduced as producers have continually checked for any leaks in miles of pipe that was exposed to frigid cold for more than 72 hours. The industry remained focused on bringing crackers back online to produce ethylene needed to feed downstream plants that produce plastic resins and other products.

Numerous force majeures declared the week of Feb. 15 remained in effect as producers sought to clear backlogs of contract orders.

LyondellBasell CEO Bob Patel said at an energy conference March 16 that US resin supply could take the rest of 2021 to catch up to demand after weather-related setbacks in 2020 and the February freeze, particularly as already strong demand grows alongside economic recovery boosted by COVID-19 vaccinations becoming more available worldwide.

“As vaccines are rolled out, the year-over-year demand growth and the additional recovery-related growth in demand is still in front of us,” he said. “And supply is going to have to catch up all year long to meet this level of demand that we expect this year.”

Here is a rundown of fallout from the freeze:

FORCE MAJEURES

**Dow Chemical: Declared Feb. 19, on 2-ethylhexanol and butanol products from its Texas City, Texas complex

**Formosa Plastics USA: Declared Feb. 19 on US polyethylene

**BASF: Declared Feb. 19 on dioctyl terephthalate (DOTP), a plasticizer, at its Pasadena, Texas, site

**Westlake Chemical: Declared Feb. 19 on US caustic soda, chlorine, PVC and VCM; company has 2.9 million mt/year of US caustic soda capacity, more than 2 million mt/year of PVC capacity, 2.6 million mt/year of VCM; more than 2.26 million mt/year of chlorine capacity at five affected sites

**Formosa Plastics USA: Declared Feb. 18 on US PVC, 1.3 million mt/year of capacity at Point Comfort, Texas, and Baton Rouge, Louisiana, complexes.

**Dow Chemical: Declared Feb. 18 on multiple intermediate chemicals produced at plants in Deer Park, Freeport, Texas City and Bayport Texas, Hahnville, Louisiana, and Louisville, Kentucky; declaration includes vinyl acetate monomer (VAM), methyl methacrylate (MMA), glacial methacrylic acid (GMAA), butyl methacrylate (BMA), glycidyl methacrylate (GMA), 2-ethylhexyl Acrylate (2EHA), butyl acrylate (BA), and others; Dow informed South American customers

**Celanese: Declared force majeure Feb. 18 on multiple intermediate chemicals normally sold to customers in the US, Europe and the Middle East, including acetic acid, VAM, ethyl acetate and ethylene vinyl acetate (EVA)

**Total: Declared Feb. 17 on polypropylene produced at its 1.15 million mt/year La Porte, Texas, facility

**Formosa Plastics USA: Declared Feb. 17 on all chlor-alkali products

**LyondellBasell: Declared Feb. 16 on styrene monomer

**Vestolit: Declared Feb. 16 on PVC produced at its Colombia and Mexico plants on lack of upstream vinyl chloride monomer feedstock from US suppliers; plants have a combined 1.8 million mt/year of capacity

**Olin: Declared Feb. 16 on US chlorine, caustic soda, ethylene dichloride, epoxy, hydrochloric acid and other products produced at its Freeport, Texas, complex; ; on Feb. 18 Olin expanded the declaration in a separate letter to customers to include products made system-wide

**MEGlobal: Declared Feb. 15 on MEG produced at its Freeport, Texas, site

**LyondellBasell: Declared Feb. 15 on US polyethylene

**Flint Hills Resources: Declared Feb. 15 on polypropylene produced at Longview, Texas

**OxyChem: Declared Feb. 15 on US chlorine, caustic soda, EDC, vinyl chloride monomer and polyvinyl chloride.

**LyondellBasell: Declared Feb. 15 on US polypropylene

**INEOS Olefins and Polymers USA: Declared Feb. 15 on polypropylene

**OQ Chemicals: Declared Feb. 15 on US oxo-alcohols, aldehydes, acids and esters produced at its Bat City, Texas, operations

SHUTDOWNS

**Shell: two crackers with a combined 961,000 mt/year of capacity, Deer Park, Texas

**Nan Ya Plastics: cumulative 1.17 million mt/year of monoethylene glycol, Point Comfort, Texas

**CP Chem: 998,000 mt/year HDPE, Pasadena, Texas

**TPC Group: Houston site, including 544,310 mt/year butadiene unit

**CP Chem: three crackers with a combined capacity of 1.36 million mt/year of capacity, Sweeny, Texas

**INEOS: 1.89 million mt/year of ethylene capacity, Chocolate Bayou, Texas

**LyondellBasell: 1.134 million mt/year cracker, Corpus Christi, Texas

**Dow Chemical: 827,000 mt/year cracker, Orange, Texas

**Indorama Ventures: 435,000 mt/year EO, 358,000 mt/year MEG, Clear Lake, Texas

**LyondellBasell: 265,000 mt/year MEG, Bayport, Texas

RESTARTS

**Dow Chemical: Three crackers with a cumulative capacity of 3.68 million mt/year of capacity and two LDPE units with 552,000 mt/year and 186,000 mt/year HDPE, Freeport, Texas; 490,000 mt/year LLDPE and 390,000 mt/year HDPE, Seadrift, Texas

**Formosa Plastics USA, Point Comfort, Texas: 1.2 million mt/year cracker; 875,000 mt/year HDPE; 400,000 mt/year of LDPE; 465,000 mt/year of LLDPE; 798,000 mt/year of PVC; 1 million mt/year of caustic soda and 910,000 mt/year of chlorine; 753,000 mt/year of VCM; 1.478 million mt/year of EDC; two PP units with combined capacity of 1.7 million mt/year

**Westlake Chemical: 331,763 mt/year cracker, 249,475 mt/year chlorine, 274,423 mt/year caustic soda, 680,388 mt/year vinyl chloride monomer, 680,388 mt/year polyvinyl chloride, Calvert City, Kentucky

**Eastman Chemical: 730,000 mt/year ethylene capacity, Longview, Texas

**LyondellBasell: 3 million mt/year of ethylene capacity in Channelview and La Porte, Texas

**CP Chem: Two crackers with cumulative 2.53 million mt/year capacity, Cedar Bayou, Texas

**Lotte Chemical: 700,000 mt/year MEG, 1 million mt/year joint-venture cracker, Lake Charles, Louisiana

**Olin: Freeport, Texas complex, with 3 million mt/year of caustic soda and 2.73 million mt/year of chlorine capacity; 748,000 mt/year of EDC

**OxyChem: 544,000 mt/year cracker; 248,000 mt/year chlor-alkali; 680,000 mt/year EDC, Ingleside, Texas; Deer Park and Pasadena, Texas, 1.27 million mt in PVC capacity, Deer Park and Pasadena, Texas; 1.79 million mt/year of VCM, 580,000 mt/year chlor-alkali, La Porte, Texas

**Shintech: Freeport, Texas: 1.45 million mt/year PVC; one of three PVC lines shut down week of March 15 for a planned turnaround

**Indorama Ventures: 235,867 mt/year cracker; 1 million mt/year ethylene oxide/MEG unit, 238,135 mt/year propylene oxide unit, and 988,000 mt/year of MTBE capacity, Port Neches, Texas

**Westlake Chemical, 632,000 mt/year cracker, Lake Charles, Louisiana

**MEGlobal: 750,000 mt/year monoethylene glycol (MEG) plant, Freeport, Texas

**Nan Ya Plastics, two MEG units with a cumulative 1.17 million mt/year capacity, Point Comfort, Texas

**Dow Chemical: 300,000 mt/year MEG, Seadrift, Texas

**Indorama Ventures: 300,000 mt/year MEG, Clear Lake, Texas

**CP Chem, two crackers with a combined 1.9 million mt/year of capacity, Cedar Bayou, Texas

**CP Chem, 853,000 mt/year cracker, Port Arthur, Texas

**Braskem: 360,000 mt/year PP Freeport, Texas; 450,000 mt/year PP, La Porte, Texas

**Motiva Chemicals: 635,000 mt/year mixed-feed cracker, Port Arthur, Texas

**Shell: Norco, Louisiana, restarted two crackers with a combined 1.4 million mt/year of capacity

**Baystar Polymers: 408,000 mt/year HDPE unit at Bayport, Texas

**Flint Hills Resources: 658,000 mt/year PDH unit, Houston

**Dow Chemical: 750,000 PDH, Freeport, Texas

**ExxonMobil: Beaumont, Texas; 826,000 mt/year cracker; 225,000 mt/year HDPE; 240,000 mt/year LDPE; 1.19 million mt/year LLDPE with some HDPE capacity

**ExxonMobil: Baytown, Texas; three crackers with a combined capacity of 3.8 million mt/year; 800,000 mt/year PP

**Sasol: 380,000 mt/year EO/MEG, Lake Charles, Louisiana

**Formosa Plastics USA: 513,000 mt/year PVC, 653,000 mt/year VCM, Baton Rouge, Louisiana

**LyondellBasell: Lake Charles, Louisiana, joint-venture 470,000 mt/year LLDPE; 420,000 mt/year LDPE

PRICES

**The FD Mont Belvieu spot ethylene price has risen 53% since Feb. 12 to 55.50 cents/lb on March 19, while the FD Choctaw marker has risen 61% in that span to 58 cents/lb

**Spot polymer-grade propylene prices rose 27% from Feb. 12 to an all-time high of $1.24.75/lb FD USG when all three US PDH plants were shut – two on the freeze, one for a turnaround – but have since declined 32% to 84 cents/lb FD USG on March 19.

**US export PVC prices reached a fresh all-time high of $1,700/mt March 17 on deals done amid tight post-freeze supply and turnarounds.

https://www.spglobal.com/platts/en/market-insights/latest-news/petrochemicals/031921-factbox-post-freeze-us-petrochemical-restarts-progressing

March 21, 2021

China Demand Puzzle

China petrochemicals and the lack of logical basis for the 2021 boom theory

Business, Company Strategy, Economics, Europe, European economy, European petrochemicals, Fibre Intermediates, India, Indonesia, Oil & Gas, Olefins, Philippines, Polyolefins, Singapore, South Korea, Taiwan, Thailand, US By John Richardson on 21st March 2021 in Business, Company Strategy, Economics, Europe, European economy, European petrochemicals, Fibre Intermediates, India, Indonesia, Oil & Gas, Olefins, Philippines, Polyolefins, Singapore, South Korea, Taiwan, Thailand, US SHARE THIS STORY

By John Richardson

IF YOU DO a Google search, you will find a lot of articles on China’s economic recovery. Click on the links, spend some time reading them in detail, and you will discover a common narrative: China’s recovery remains on track this year. But you will not find the data that conclusively supports this notion.

But we do have ICIS petrochemicals data for 2020 which shows an historically good year in Chins that defied all the pessimistic predictions.

Let me start with the above chart which shows the extraordinary strong growth in demand across a range of products. In terms of percentages, 2020 growth was in some cases more than what occurred in 2019 versus 2018.

And in all the examples above, the additional volumes of demand in 2020 were big. Take polypropylene (PP) as the standout example. Our preliminary estimate is that last year’s demand was around 4m tonnes more than in 2019.

Please also study the chart below which compares the same preliminary estimates for 2020, which are for apparent demand (net imports plus local production), with our original forecasts for real demand growth. Real demand is apparent demand adjusted for inventory distortions.

Across the three grades of polyethylene (PE), 2020 apparent demand was 2.7m tonnes more than our original forecasts. PP was 1.6m tonnes more and paraxylene 2m tonnes higher.

When we have completed our final estimates for China’s 2020 demand later this year, it might be that our final numbers are not quite as bullish as these estimates for apparent demand.

But without doubt, our final numbers will be much higher than our original forecasts. China will have generated many millions of tonnes of consumption that had not been expected.

Why I continue to focus on these themes is that I am concerned our ICIS customers will end up being exposed to a sudden correction in pricing if we eventually discover that demand growth so far this year has been weaker than in Q4 2020. This is the crucial comparison because growth in the fourth quarter of last year was so extraordinarily strong.

I am not saying, and have never said, that China’s economy could fall off the proverbial shelf. The risk is instead that the same growth momentum will not be maintained.

I believe that China’s economy has lost some steam, mainly because China’s export growth must have slowed down in Q1 2021 – again compared with the fourth quarter of 2020, the only valid comparison.

Why do I believe export growth will have slowed down? Firstly, because some loss of momentum was always going to happen given Q4 last year was so strong. The second reason is there are so many negative influences on exports, their sheer number points in a clear direction.

February’s official and Caixin/Markit purchasing managers’ (PMIs) indices both indicated a fall in new export orders. Perhaps the March PMIs will tell us something different. But they will cover new export orders for April which is obviously in Q2.

It stands to reason that there must have been some negative effect on Chinese exports because of the global container-freight and semiconductor shortages.

The lack of data and analysis on both these critical supply-chain issues is, I believe, a major concern. We need to get better at monitoring supply chains in general – a theme I will cover in detail in later posts.

It could be that the double-dip recession in the EU has slowed Chinese export growth; and/or peak demand has already arrived for laptops, washing machines and all other goods that we have bought in greater volumes because we have been stuck in lockdowns.  Another “and/or” could be that the easing of lockdowns has reduced demand for lockdown-related goods.

Our lack of ability to adequately assess the variables in this last paragraph was the theme of my 18 March post.

It is critical to understand that last year’s soaring petrochemicals demand in China was mainly an “in-out” story – rising petrochemicals imports that were re-exported as finished goods that served pandemic-related demand. The data clearly tell us this.

What is also important to recognise is that last year, Chinese local consumption was smaller than before the pandemic. The only question is how much smaller: were 2020 retail sales 3.9% down on 2019 – the official number – or 4.8% lower, the China Beige Book estimate?

Domestic demand growth will, I believe, be underwhelming during Q1 2021 because of disappointing Lunar New Year holiday spending. Government economic stimulus has also been reduced in 2021. This is in response to the rise in debts caused by the pandemic-relief programme.

The steep decline in Chinese stock markets during March might have also negatively affected domestic spending.

The health of local stock markets is critical to measure when trying to assess Chinese consumer spending because the vast majority of investors are retail investors. One study suggests that no less than 99.6% of 2019 investments in Chinese markets were by retail or individual players. This compared with 48% in the US.

Let me stress that when I say domestic demand growth will be underwhelming in Q1 2021, I am not suggesting anything like a collapse. I am instead suggesting that somewhat disappointing local growth will combine with weaker exports to reduce the all-important economic momentum versus the fourth quarter of 2020.

The consensus view is that Chinese growth must be stronger than this year than in 2020 because the worst of the global pandemic appears to be behind us. But for the reasons I have detailed above, I don’t believe this view has a logical foundation.

Muddling apparent with real demand

I also worry that mainstream thinking has muddled strong apparent demand, caused by the recent surge in prices, with real demand.

The run-up in global petrochemicals pricing since the major US outages in February will, in time-honoured tradition, have prompted buyers to purchase ahead of their immediate raw material needs to hedge against the potential for further price increases.

If you are a PE converter, for instance, you might buy an extra few hundred tonnes in March even if the extra tonnes are beyond the immediate requirements of your customers.

You put the tonnes into storage without any visibility on whether the demand from your customers will be sufficient in April to fully consume your extra stocks.

But worrying about customer orders is not your top priority when raw-material costs are rising rapidly, as has been the case over the last few weeks. Your priority is to hedge against further price rises.

This is obviously a big risk for buyers as petrochemicals prices very suddenly so often head in the opposite direction because of unforeseen events.

Take last week’s 7% fall in oil prices as a good example which surprised crude markets that had been very bullish since the start of the year. The decline was said to be the result of a rising US dollar, increased crude inventories and fresh setbacks in European vaccination programmes.

The fall in oil prices led to lower Asian benzene, ethylene and propylene prices for the week ending 19 March, according to ICIS price assessments. But polymer markets had not been affected.

“Only when the tide goes out…”

… do you discover who’s been swimming naked,” Warren Buffett famously said.

It might be oil prices which expose who is swimming naked swimmers if the retreat in crude continues. And/or it could be the easing of historically tight petrochemicals markets as US plants come online and some of the more recent US outages are resolved.

But I believe the tide must go out over the next few months. I am not going to comment on oil prices as nobody has a clue about their direction. What without doubt will happen, though, is that petrochemicals tight supply will ease, sometime probably in April.

We will then start to understand the real and underlying nature of petrochemicals demand in the world’s most important market.

Who will be swimming naked? It will be the petrochemicals producers, buyers and traders who don’t already have purchasing and sales plans in place to deal with modestly lower Chinese growth at a time when local capacity is also sharply increasing.

For advice on how to build these plans, contact me at john.richardson@icis.com.

https://www.icis.com/asian-chemical-connections/2021/03/china-petrochemicals-and-the-lack-of-logical-basis-for-the-2021-boom-theory/

March 21, 2021

China Demand Puzzle

China petrochemicals and the lack of logical basis for the 2021 boom theory

Business, Company Strategy, Economics, Europe, European economy, European petrochemicals, Fibre Intermediates, India, Indonesia, Oil & Gas, Olefins, Philippines, Polyolefins, Singapore, South Korea, Taiwan, Thailand, US By John Richardson on 21st March 2021 in Business, Company Strategy, Economics, Europe, European economy, European petrochemicals, Fibre Intermediates, India, Indonesia, Oil & Gas, Olefins, Philippines, Polyolefins, Singapore, South Korea, Taiwan, Thailand, US SHARE THIS STORY

By John Richardson

IF YOU DO a Google search, you will find a lot of articles on China’s economic recovery. Click on the links, spend some time reading them in detail, and you will discover a common narrative: China’s recovery remains on track this year. But you will not find the data that conclusively supports this notion.

But we do have ICIS petrochemicals data for 2020 which shows an historically good year in Chins that defied all the pessimistic predictions.

Let me start with the above chart which shows the extraordinary strong growth in demand across a range of products. In terms of percentages, 2020 growth was in some cases more than what occurred in 2019 versus 2018.

And in all the examples above, the additional volumes of demand in 2020 were big. Take polypropylene (PP) as the standout example. Our preliminary estimate is that last year’s demand was around 4m tonnes more than in 2019.

Please also study the chart below which compares the same preliminary estimates for 2020, which are for apparent demand (net imports plus local production), with our original forecasts for real demand growth. Real demand is apparent demand adjusted for inventory distortions.

Across the three grades of polyethylene (PE), 2020 apparent demand was 2.7m tonnes more than our original forecasts. PP was 1.6m tonnes more and paraxylene 2m tonnes higher.

When we have completed our final estimates for China’s 2020 demand later this year, it might be that our final numbers are not quite as bullish as these estimates for apparent demand.

But without doubt, our final numbers will be much higher than our original forecasts. China will have generated many millions of tonnes of consumption that had not been expected.

Why I continue to focus on these themes is that I am concerned our ICIS customers will end up being exposed to a sudden correction in pricing if we eventually discover that demand growth so far this year has been weaker than in Q4 2020. This is the crucial comparison because growth in the fourth quarter of last year was so extraordinarily strong.

I am not saying, and have never said, that China’s economy could fall off the proverbial shelf. The risk is instead that the same growth momentum will not be maintained.

I believe that China’s economy has lost some steam, mainly because China’s export growth must have slowed down in Q1 2021 – again compared with the fourth quarter of 2020, the only valid comparison.

Why do I believe export growth will have slowed down? Firstly, because some loss of momentum was always going to happen given Q4 last year was so strong. The second reason is there are so many negative influences on exports, their sheer number points in a clear direction.

February’s official and Caixin/Markit purchasing managers’ (PMIs) indices both indicated a fall in new export orders. Perhaps the March PMIs will tell us something different. But they will cover new export orders for April which is obviously in Q2.

It stands to reason that there must have been some negative effect on Chinese exports because of the global container-freight and semiconductor shortages.

The lack of data and analysis on both these critical supply-chain issues is, I believe, a major concern. We need to get better at monitoring supply chains in general – a theme I will cover in detail in later posts.

It could be that the double-dip recession in the EU has slowed Chinese export growth; and/or peak demand has already arrived for laptops, washing machines and all other goods that we have bought in greater volumes because we have been stuck in lockdowns.  Another “and/or” could be that the easing of lockdowns has reduced demand for lockdown-related goods.

Our lack of ability to adequately assess the variables in this last paragraph was the theme of my 18 March post.

It is critical to understand that last year’s soaring petrochemicals demand in China was mainly an “in-out” story – rising petrochemicals imports that were re-exported as finished goods that served pandemic-related demand. The data clearly tell us this.

What is also important to recognise is that last year, Chinese local consumption was smaller than before the pandemic. The only question is how much smaller: were 2020 retail sales 3.9% down on 2019 – the official number – or 4.8% lower, the China Beige Book estimate?

Domestic demand growth will, I believe, be underwhelming during Q1 2021 because of disappointing Lunar New Year holiday spending. Government economic stimulus has also been reduced in 2021. This is in response to the rise in debts caused by the pandemic-relief programme.

The steep decline in Chinese stock markets during March might have also negatively affected domestic spending.

The health of local stock markets is critical to measure when trying to assess Chinese consumer spending because the vast majority of investors are retail investors. One study suggests that no less than 99.6% of 2019 investments in Chinese markets were by retail or individual players. This compared with 48% in the US.

Let me stress that when I say domestic demand growth will be underwhelming in Q1 2021, I am not suggesting anything like a collapse. I am instead suggesting that somewhat disappointing local growth will combine with weaker exports to reduce the all-important economic momentum versus the fourth quarter of 2020.

The consensus view is that Chinese growth must be stronger than this year than in 2020 because the worst of the global pandemic appears to be behind us. But for the reasons I have detailed above, I don’t believe this view has a logical foundation.

Muddling apparent with real demand

I also worry that mainstream thinking has muddled strong apparent demand, caused by the recent surge in prices, with real demand.

The run-up in global petrochemicals pricing since the major US outages in February will, in time-honoured tradition, have prompted buyers to purchase ahead of their immediate raw material needs to hedge against the potential for further price increases.

If you are a PE converter, for instance, you might buy an extra few hundred tonnes in March even if the extra tonnes are beyond the immediate requirements of your customers.

You put the tonnes into storage without any visibility on whether the demand from your customers will be sufficient in April to fully consume your extra stocks.

But worrying about customer orders is not your top priority when raw-material costs are rising rapidly, as has been the case over the last few weeks. Your priority is to hedge against further price rises.

This is obviously a big risk for buyers as petrochemicals prices very suddenly so often head in the opposite direction because of unforeseen events.

Take last week’s 7% fall in oil prices as a good example which surprised crude markets that had been very bullish since the start of the year. The decline was said to be the result of a rising US dollar, increased crude inventories and fresh setbacks in European vaccination programmes.

The fall in oil prices led to lower Asian benzene, ethylene and propylene prices for the week ending 19 March, according to ICIS price assessments. But polymer markets had not been affected.

“Only when the tide goes out…”

… do you discover who’s been swimming naked,” Warren Buffett famously said.

It might be oil prices which expose who is swimming naked swimmers if the retreat in crude continues. And/or it could be the easing of historically tight petrochemicals markets as US plants come online and some of the more recent US outages are resolved.

But I believe the tide must go out over the next few months. I am not going to comment on oil prices as nobody has a clue about their direction. What without doubt will happen, though, is that petrochemicals tight supply will ease, sometime probably in April.

We will then start to understand the real and underlying nature of petrochemicals demand in the world’s most important market.

Who will be swimming naked? It will be the petrochemicals producers, buyers and traders who don’t already have purchasing and sales plans in place to deal with modestly lower Chinese growth at a time when local capacity is also sharply increasing.

For advice on how to build these plans, contact me at john.richardson@icis.com.

https://www.icis.com/asian-chemical-connections/2021/03/china-petrochemicals-and-the-lack-of-logical-basis-for-the-2021-boom-theory/

March 19, 2021

Maasvlakte POSM Plant Update

LyondellBasell, Covestro expected to restart Maasvlakte POSM plant mid-April

17:22 PM | March 18, 2021 | Fahima Mathe, OPIS

Facility has been running at reduced rate since February, with force majeure declared 11 February on styrene, propylene oxide production.

https://chemweek.com/CW/Document/118108/LyondellBasell-Covestro-expected-to-restart-Maasvlakte-POSM-plant-mid-April

Here’s the original post on the force majeure:

Force Majeure in Europe