Asian Petrochemical Profits Slammed By Trade War Crossfire, Oversupply

www.oann.com | 2/26/2019 | Staff
morica (Posted by) Level 3
SINGAPORE/SEOUL (Reuters) – Profits from making petrochemicals in Asia have plunged to their lowest in months as the unrelenting trade conflict between Beijing and Washington stifles Chinese demand for chemicals and plastics just as waves of new production start to come on line.

The global output capacity for polyethylene, a key ingredient for plastics used in everything from piping to toys, is expected to exceed demand by 3 million tonnes by the end of 2020, compared to overcapacity of 545,000 tonnes in 2019, data from commodity consultancy Wood Mackenzie showed.

Production - China - South - Korea - Malaysia

That comes as new production is set to crank up in China, South Korea and Malaysia, although the United States and the Middle East will account for more than half of the new volumes.

“In the next two years, the operating rates (of polyethylene units) will be impacted as the capacity additions are faster than the demand addition,” said U.S.-based Wood Mackenzie principal analyst Ashish Chitalia.

Analysts - Profit - Margins - Years - Ballooning

Though analysts say polyethylene profit margins are already at their narrowest in around seven years, ballooning supplies could drive them even lower – placing high-cost producers under critical pressure.

The spread between prices for polyethylene and feedstock naphtha gives an approximation of how much profit petrochemical makers can make.

Data - Korea - Petrochemical - Industry - Association

Based on data from the Korea Petrochemical Industry Association (KPIA), the average spread between high-density polyethylene (HDPE) and naphtha feedstock costs in the second quarter was $421.34 a ton – the lowest quarterly average since 2012.

And the pressure is growing. The average spread for HDPE – used to make bottle caps, detergent tubs and piping – was down to $414 a ton in the week ended Aug. 16.

Plastic - Density - Polyethylene - LLDPE - Host

Meanwhile a plastic known as linear low density polyethylene (LLDPE), used in a host of products including food and non-food packaging, is similarly weak.

“The average LLDPE/naphtha spread for July was around $418 a...
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