Slowing growth keeps prices LOW
Prices for both aliphatic and aromatic petrochemicals will stay relatively low in 1998. Purchasing's aliphatics price index will continue its downward trend, with a slight increase possible in the fourth quarter, while the aromatics index will stay close to last year's average level after rising in January.
By Cheryl C Lewis -- Purchasing, 3/12/1998
At first glance, 1998 is lining up to be another good year for petrochemical buyers. Prices for these chemicals will remain low, and availability won't be a problem barring any unexpected supply disruptions.There is, however, a growing negative for purchasing pros that wasn't in last year's scenario. Their companies' businesses will likely be down from last year, so purchasers will be buying lower volume of raw materials.
Why? In general, demand for petrochemicals tracks the economy, and the domestic economy finally is showing signs of slowing after several strong years of growth. Possibly adding fuel to the fire is the effect of Asian markets, which are major importers of U.S. petrochemicals and/or their derivatives. Several Asian economies currently are in a state of uncertainty, which could lead to a downturn in petrochemical and derivative exports from the U.S. into Asia, further slowing domestic petrochemical demand as well as the overall economy.
There are two major categories of basic petrochemicals: aliphatics, including ethylene and propylene; and aromatics, such as benzene, toluene, mixed xylenes, and styrene. In 1998, aliphatic prices will continue to weaken due to oversupply. A number of producers are in the process of adding capacity. Purchasing's index of aliphatic chemical prices increased to a high of 96.8 in November 1997. After that, the index began to decline, falling to 91.3 in January. The index is forecast to continue its downward trend, falling to an average of 88.0 in the third quarter.
Prices for aromatic chemicals will track separate market conditions. Prices will, however, remain close to what they were in 1997. In 1997, Purchasing's index of aromatic chemicals fluctuated between 80.7 (February) and 75.6 in November. In January, the index strengthened, climbing to 79.2. Now, the index is forecast to dip to an average of 78.0 in the second quarter, then remain at that level through the rest of the year.
Here are detailed price and market forecasts for six major categories of basic petrochemicals: ethylene, benzene, toluene, mixed xylenes, propylene, and styrene.
Ethylene
With increased capacity and slower demand, domestic ethylene prices will soften in 1998. The average price is forecast to fall from an average of 25(cent)/lb in December to 23(cent)/lb in the second quarter, according to exclusive data from buyers responding to Purchasing's monthly chemical transaction price survey.
In first quarter, 1997, U.S. ethylene prices averaged 23.5(cent)/lb. Tags then plateaued at 26.5(cent)/lb for contracts and 25.5(cent)/lb for spot purchases through the third quarter. In the fourth quarter, tags began to slide, falling to an average of 25(cent)/lb. Prices rolled over in January.
An estimated 24 domestic producers of ethylene account for approximately 57 billion lb/yr of capacity. A number of those producers have recently increased or are increasing capacity. Last year, Eastman Chemical debottlenecked its plant in Longview, Texas, adding 200 million lb/yr. Huntsman Corp. expanded its 400 million lb/yr, Port Arthur, Texas, plant, adding up to 500 million lb/yr of capacity. Quantum Chemical increased capacity at its Clinton, Iowa, unit by 90 million lb/yr.
Union Carbide modernized its olefins production facility at Taft, La. The project boosted the site's effective capacity by nearly 700 million lb to 2.2 billion lb/yr. Exxon is building a 1.54 billion lb/yr ethylene plant in Baytown, Texas. The project is set for completion later this year. Westlake constructed an olefins cracker at its Westlake, La., production complex, increasing the company's capacity at that site to 2.3 billion lb/yr.
Huntsman and Envron Liquid Services Corp. have teamed up to build a 1.75 billion lb/yr ethylene facility. The project, which is scheduled for start up in 1999, will likely be constructed in Port Arthur, Texas. Union Carbide and Nova Corp. are constructing a 2.8 billion lb/yr ethylene plant at Joffre, Alberta. The project is set for completion in 2000.
Equistar Chemicals (Lyondell Petrochemical and Millennium) and Union Carbide plan to build a 2 billion lb/yr olefins plant at Channelview, Texas. The facility's earliest start up date would be mid-2000.
Meantime, Dow Chemical closed a Freeport, Texas, light-hydrocarbon plant, that produced 700 million lb/yr of ethylene. The company planned to make up that capacity at its other ethylene facilities.
In other supplier news, Lyondell Petrochemical and Millennium recently formed the joint venture, Equistar Chemicals. The venture includes the companies' ethylene and polyethylene assets. Also in 1997, Westlake bought B.F. Goodrich's chlor-alkali and olefins facilities in Calvert City, Ky.
U.S. demand for ethylene was at 50 billion lb in 1997, according to The Pace Consultants, Houston, Texas. Ethylene consumption is growing 2%-4%/yr. The major markets are ethylene oxide, ethylene glycol, polyethylenes, styrene, vinyl chloride monomer and polyvinyl chloride production.
Benzene
Through most of 1998, benzene prices will average between $1.00/gal and $1.10/gal. Tags will be strongest in the third quarter. U.S. bulk prices are forecast to average $1.05/gal through the first half of the year, then pop up to $1.10/gal in the third quarter. After that, prices will slip back to an average of $1.05/gal.
In 1996, benzene tags slipped, falling from an average of $1.10/gal in the first quarter to $1.08/gal in the second quarter. Tags dropped sharply in the third quarter, sinking to $0.98/gal. In the fourth quarter, tags recovered, climbing to $1.01/gal. In January, benzene prices were up to an average of $1.07/gal.
U.S. benzene capacity is at 2.5 billion gal/yr. In 1997, Chevron and Saudi Industrial Venture Capital group formed a 50:50 joint venture to build a 482,000 ton/yr benzene plant in Al-Jubail, Saudi Arabia. Completion is set for 1999. Late in 1997, Lyondell Petrochemical's Channelview, Texas, benzene unit was turned over to Equistar Chemicals, a 50:50 joint venture between Lyondell and Millennium Chemicals.
In 1997, benzene demand inched up to 2.5 billion gal, a 1.5% increase, according to The Pace Consultants, Houston, Texas. Benzene consumption will rise 1%-2%/yr. Styrene production accounts for about 50% of demand. Other major deriviates are cumene and cylcohexane.
Styrene
U.S. styrene prices will bottom out at an average of 28(cent)/lb in 1998. Oversupply has kept downward pressure on prices for more than two years. U.S. bulk contracts for 99.6% grade material averaged 36(cent)/lb in the first quarter of 1996. In the second quarter, tags dropped slightly to 35.5(cent)/lb. After that, prices declined swiftly, falling to an average of 29.5(cent)/lb in first quarter, 1997. Contracts firmed in the second quarter, rising to 32(cent)/lb, but dropped back in the third quarter to 31.5(cent)/lb. By the fourth quarter, prices were back down to 29.5(cent)/lb.
Spot market prices peaked at a high of 34(cent)/lb in third quarter, 1996. After that, tags fell, dropping to an average of 31(cent)/lb in first quarter, 1997. Spot prices moved up to 33(cent)/lb in the second quarter before falling back to 31(cent)/lb in the third quarter. In the fourth quarter, tags were back up to 32(cent)/lb. In January, spot prices were down to 29(cent)/lb.
There are 14 domestic styrene producers with total capacity of almost 7 billion lb/yr. A number of producers are adding capacity. Nova Chemicals is upgrading its styrene facility in Sarnia, Ontario. New technology will increase monomer capacity by 350 million lb/yr to 950 million lb/yr.
Arco Chemical is building a propylene oxide/styrene plant in Rotterdam, the Netherlands. The facility, which will come on stream in fourth quarter, 1999, will have the capacity to produce 625 million lb/yr of propylene oxide and 1.4 billion lb/yr of styrene. The company also plans to build a 250 million lb/yr butanediol unit at the same site. Start up for the second plant is scheduled for early 2001.
Amoco Corp. is expanding its Texas City, Texas, styrene capacity. The company is building a 1 billion lb/yr unit near an existing 1 billion lb/yr plant. The project is expected to be operational by early 2000.
U.S. demand for styrene increased only 3% in 1997 to 9.3 billion lb, according to The Pace Consultants. Consumption of this aromatic chemical is growing 2%-3%/yr. Polystyrene production is the largest application for styrene, accounting for about two-thirds of demand. The export market is another major factor for domestic styrene producers. This business, however, has been weak, because new styrene capacity is coming on stream in the Far East.
Propylene
Propylene prices will weaken through the first half of this year, because increasing capacity and slower demand will keep downward pressure on domestic prices. U.S. bulk prices for chemical-grade propylene will decline from an average of 18(cent)/lb in fourth quarter, 1997 to 16(cent)/lb in the second quarter.
Propylene contracts peaked in the third quarter of 1997 at an average 19(cent)/lb. Since then, tags have slipped, falling to an average of 18(cent)/lb in the fourth quarter. In January, prices dropped to an average of 17(cent)/lb.
There are 33 producers of propylene in the U.S. with total capacity of almost 31 billion lb/yr. About half of propylene production comes from olefins plants. Most of these facilities yield about one-third of a pound of propylene for every pound of ethylene, but the exact amount depends on feedstocks and operating rates.
A number of olefins producers are increasing capacity. Last year, Eastman Chemical expanded its Longview, Texas, plant, adding 60 million lb/yr of propylene capacity. Union Carbide recently modernized its olefins plant at Taft, La., boosting the unit's effective capacity by nearly 700 million lb/yr to 2.2 billion lb/yr. Exxon built a 1.54 billion lb/yr olefins plant at Baytown, Texas.
In other capacity news, Millennium Chemicals and Lyondell Petrochemicals recently set up a joint venture, Equistar Chemicals. Equistar now operates Lyondell's Channelview, Texas, plant and Millennium's Clinton, Iowa; Morris, Ill., and La Porte, Texas, plants. The Clinton, Iowa, olefins production facility was expanded in 1997, boosting the site's capacity by 90 million lb/yr.
Lyondell Petrochemical and Millennium--most likely known as Equistar--and Union Carbide have plans to build a 2 billion lb/yr olefins plant. The plant will be operated by Lyondell at its Channelview, Texas, site. Earliest start-up date is mid-2000.
Marathon Oil and Epsilon Products are developing grassroots polymer-grade propylene and polypropylene facilities at Marathon's refinery in Grayville, La. The facilities will produce 800 million lb/yr of polymer-grade propylene and 800 million lb/yr of polypropylene. The companies expect the units to be running by the fourth quarter, 1999.
Last year, Huntsman Chemical purchased Texaco's propylene oxide/methyl-tertiary-butyl ether (mtbe) business, including the Port Neches, Texas, plant that produces 400 million lb/yr of propylene and 15,000 barrel/day of mtbe. Late in 1997, Westlake bought B.F. Goodrich's chlor-alkali and olefins facilities in Calvert City, Ky.
In 1997, U.S. demand for propylene topped 28 billion lb, according to data from The Pace Consultants, Houston, Texas. Consumption for this aromatic chemical is growing 3%-4%/yr. The largest application for propylene is polypropylene production, accounting for about one-half of demand. It is also the fastest growing end use with an average growth rate of 4%-5%/yr. Other applications for propylene include propylene oxide, propylene glycol, and acrylonitrile.
Toluene
Domestic toluene prices have weakened during the past six months but will jump as demand increases in the third quarter. The increase will be within normal limits, because buyers predict prices will remain close to levels encountered last year. In 1997, U.S. bulk contracts for toluene declined from an average of $1.06/gal in the first quarter to $0.98/gal in the second quarter, according to Purchasing's monthly survey of chem-ical buyers. After that, contracts increased through the end of the year, climbing to an average of $1.08/gal in the fourth quarter. In January, toluene contracts notched downward to an average of $1.05/gal. Buyers forecast contracts will dip to an average of $0.98/gal in the second quarter, before rising to $1.10/gal in the third quarter.
Spot market prices will track contracts. In 1997, these prices firmed through the third quarter despite a second quarter downturn in contracts. Spot tags rose from an average of $1.07 in the first quarter to $1.20/gal in the third quarter. Since then, these prices have weakened, falling to an average of $1.00/gal in January. Buyers predict spot prices will drop to an average of $0.98/gal in the second quarter. As the third quarter gets underway, spot toluene tags will rise, jumping to $1.10/gal.
There are an estimated 23 producers of toluene in the U.S. Total capacity is about 1.6 billion gal. Toluene is primarily produced from the gasoline blending pool at refineries. Several of these producers are boosting capacity (see benzene section above). Toluene is also a by-product of styrene production, and several of these producers are increasing capability (see styrene section above).
In other supplier news, Lyondell Petrochemical's Channelview, Texas, aromatics production unit at Channelview, Texas, was recently transferred to Equistar Chemicals, a joint venture set up between Lyondell and Millennium Chemicals.
In 1997, toluene demand increased 4.5% to 930 million gal, according to The Pace Consultants. This year, consumption is forecast to grow 3%. Toluene has a wide range of end uses. Its principal end use is as a hydrocarbon solvent. Toluene is also a feedstock for a number of derivatives, including benzene and xylenes. Another major application is found in gasoline blending.
Mixed xylenes
U.S. mixed xylene contracts strengthened during the past nine months but will weaken throughout 1998. Reason: Availability will improve.
U.S. bulk contracts rose from a low of $1.00/gal in the second quarter to $1.08 in the third quarter. Prices slipped just slightly to $1.07/gal in the fourth quarter but quickly recovered to an average of $1.20/gal in January. Now, prices are softening. Buyers look for contracts to fall to an average of $1.08/gal in the third quarter. $1.15/gal through the second quarter, according to exclusive data from Purchasing's transaction price survey.
Prices for toluene on the spot market began to weaken in the fourth quarter. These tags fell from a high of $1.14/gal in the third quarter to $1.13/gal in the fourth quarter. Spot market prices are expected to average $1.05/gal in the first quarter. Prices will soften to an average of $1.00/gal in the second quarter and hold at that level through the third quarter.
U.S. mixed xylene capacity totals over 13 billion lb/yr. There are about 21 domestic producers. Mixed xylenes are extracted from the gasoline blending pools at refineries and can also be produced from toluene disproportionation. In December, Lyondell Petrochemical's Channelview, Texas, aromatics production facility became part of Equistar Chemicals, a joint venture between Lyondell and Millennium Chemicals.
Several aromatic extraction producers are in the process of expanding capacity (see benzene section above). In addition, Chevron is in the process of expanding its Pascagoula, Miss., refinery. The project will double production capacity for paraxylene--a derivative of mixed xylenes--to over 1 billion lb/yr. Completion is scheduled for second quarter, 1998.
Mixed xylene demand was up sharply last year because of increased exports into Asia. There are three major derivatives for mixed xylenes: orthoxylene, metaxylene and paraxylene. Orthoxylene's major application is phthalic anhydride, and paraxylene is used mostly to produce polyethylene terephthalate (PET). Metaxylene goes into isophthalic acid and the gasoline pool.
Market at a glance
Pricing: Aliphatic chemical pricing will continue to decline. Prices for aromatics will remain fairly stable, fluctuating slightly with supply/demand conditions.
Demand: Demand for basic petrochemicals is mature, growing 1%-4%/yr.
Supply: Barring any unforeseen supply disruptions, availability won't be a problem. For aliphatic chemicals, new capacity continues to come on stream.
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