Asia olefins face historical production losses due to regional lockdowns

A new report from Wood Mackenzie shows that olefins production losses in Asia have reached historical highs as a result of regional lockdowns in the wake of the coronavirus outbreak.

About 58% of the production of olefins – ethylene and propylene in Asia is integrated with refineries, either through steam crackers integrated with refineries, or refinery purification of propylene. Regional refinery operation cuts have therefore had a significant impact on olefins production.

Wood Mackenzie principal analyst Catherine Tan said: “We estimate about 496 kilo-tonnes (Kt) of ethylene and 533 Kt of propylene production capacity to be lost between January and May as a result of declining refinery utilisation rates, and coronavirus containment measures across Asia. This is in addition to outages from planned maintenances.

“Production losses in March and April will exceed the last peak turnaround season in 2015, mainly due to lockdowns in China and India.”

India’s petrochemical supply chain has been severely disrupted. The country’s refinery utilisation rate saw a 24% year-on-year decline in April in response to lower fuel demand, weak refining margins and loss in export markets. About 45% of India’s ethylene capacity and 84% of its propylene capacity are integrated with refineries, and therefore affected.

Although new guidelines allow operations in non-hotspot regions from 20 April, most Indian refineries and petrochemical production sites remain shut or operating at low rates as the conditions to reopen or ramp up operations were deemed economically unviable.

While operations at Chinese plants have recovered to some degree, demand remains the key issue. Cancellation of orders for Chinese exports from the western hemisphere have threatened operations at export-oriented Chinese factories, in turn reducing demand for feedstocks and intermediates.

In Asia, the ethylene market is amply supplied with the availability of deep-sea cargoes coupled with poor demand outlook. This is reflected in an extremely weak price spread over naphtha. In comparison, the Asian propylene market has been more balanced, with reduced refinery-related supply, paired with increased demand into fibre-grade polypropylene production. As a result, the propylene to ethylene price ratio is at a record high in April.

Tan said: “As the pandemic evolves and each country adapts its containment strategy, we expect refinery utilisation rates to be adjusted lower from our initial estimates in the coming weeks, creating ripple effects on the olefins markets.

“Also to watch, China, the first economy to be hit by the coronavirus outbreak, and on the front end of the pandemic response curve. Post lockdown, transportation fuel demand in the country has started to recover in April. Refineries have also ramped up utilisation rates to reap the high refining margins caused by low crude oil prices.

“Other economies will now look towards China for a glimpse of how the industry’s recovery trajectory could look.”