Chinas growing petrochemical capacities will trigger a rebound in Asian naphtha demand in 2010, after the economic crisis caused a decline this year on lower cracking output in its North Asian neighbors.
The growth will hit other North Asian producers that rely on demand from Asias top petrochemicals importer. It could force some to cut output in 2010, though the impact may be blunted by an expected economic recovery.
The Japanese could be the first to be hit, said Mazlan Razak, a DeWitt consultant. Their exports are not competitive, as their capacities are smaller and their plants are older compared to those in Korea and Taiwan.
Chinas ethylene capacities will jump 50 percent to 60 percent, to 15 million to 16 million metric tons per year by end-2010, Mazlan said, adding that some would use coal as feedstock, but the bulk will use naphtha.
Naphtha consumption in China, usually a net exporter of the light fuel petrochemical feedstock, will spike nearly 43 percent to 863,000 barrels per day in 2010 versus 605,000 bpd in 2008 and 665,000 bpd in 2009, Kang Wu of Facts Global Energy said.
He projected the worlds second-largest oil consumer to be net short of about 110,000 bpd of naphtha next year, and this could offset Japans shrinking demand.
Asias naphtha demand is expected to fall about 5.5 percent to 3.15 million bpd this year, from 3.33 million bpd in 2008, data from Facts show.
But demand will recover, and rise to 3.43 million bpd in 2010, with China leading the way, Wu added.
Chinas 12 major refiners operated in January at near three-year lows of 2.25 million bpd. February-May monthly refinery output averaged at 85 percent of capacity at 2.82 million bpd, which could not meet aromatics and ethylene demand.
China added refining capacity and its top refineries have raised Junes output to records of 2.59 million bpd. This may help keep its net-exporter status.
The petrochemical sector saw its worst slump last November when Asian crackers cut runs to unprecedented levels of 70 percent to 75 percent, after China demand tanked due to the crisis.
That pushed cracks down to a record low of $189.75 a metric ton discount in early November, before recovering in early December, as Chinese petrochemical demand gradually recovered.
Korea and Taiwan will be hit particularly hard by the growing capacity.
Source: Reuters