Korean petrochemical companies’ concerns are rising over the beginning of a down cycle. This is because their refining margins have been on the decline since early this year and an increase in supply is predicted from ethylene-cracking facilities scheduled to be put into operation in the United States in the second half of this year.
Oxy put into operation its new ethane cracking center in the U.S. in the first quarter of this year and Dow Chemical, Exxon Mobil and Chevron Phillips are planning to do so within this year as well. Then, ethylene supply increases to approximately 5.5 million tons a year. Those of Formosa Petrochemical, Indorama, Sasol and Lotte Chemical are likely to further increase the volume to around 10 million tons in 2018 and 2019.
“The significant supply-side burden from the U.S. cannot be ignored at all,” said a local stock market analyst, adding, “The market is likely to shrink in view of the fact that its boom so far has been because of ethylene, which is representing about 50% of the output of the industry.”
A similar trend is being witnessed in Japan, too. IHS Global senior director Masahiro Yoneyama recently pointed out that ethylene production capacity utilization in Japan would fall from approximately 97% to less than 90% for a couple of years down the road due to a supply glut.
In the meantime, refining margins from most petrochemical products began to drop in the second quarter. For instance, the price of ethylene fell from US$1,390 to less than US$1,000 per ton between February and June 6 and the ethylene refining margin dropped from US$874 to US$521 during the same period.