South Korean petrochemical companies, such as LG Chem Ltd. and Lotte Chemical Corp., are expected to benefit from a simultaneous shutdown of three large naphtha crackers in Europe.
Three naphtha crackers in Europe, including U.S. petrochemical firm ExxonMobil Chemical’s facility in Scotland, have stopped operation, according to market research firm ICIS on Aug. 20.
ExxonMobil announced that it is planning to close down and repair its plant in Scotland for more than a month because a boiler failure caused a fire on Aug. 13 (local time). The facility has a production capacity of 830,000 tons of ethylene a year. The U.K. plant of INEOS Olefins & Polymers, which has a production capacity of 700,000 tons of ethylene, has also stopped operation on Aug. 13 due to a technical failure, with repair expected to take four to six weeks. Shell Chemicals is planning to shut down its plant in the Netherlands for 10 to 15 days at the end of August. Its ethylene production capacity is 970,000 tons.
Ethylene prices are expected to rebound for a while due to the stoppage of the three European plants. Baek Young-chan, an analyst at KB Securities, said, “The three naphtha crackers in Europe account for 1.7 percent of the total ethylene productions in the world. Ethylene prices in Asia are forecast to rise during August and September due to the shutdown.”
In fact, ethylene prices in Asia have continued to increase for three weeks in a row after diving to US$790 (948,158 won) per ton in the fourth week in July. After news of the shutdown of the naphtha crackers in Europe broke out, the figure recorded US$895 (1.07 million won) on Aug. 16, showing a 3 percent gain from the previous week.
A rebound in ethylene prices boosts the margin of chemical products. Therefore, petrochemical companies, such as LG Chem and Lotte Chemical, will be able to see an improvement in profitability. Earlier this year, ethylene prices dropped while naphtha prices rose, causing the price spread between ethylene and naphtha to plunge. Accordingly, LG Chem saw its operating profit fall a whopping 62 percent on year to 267.50 billion won (US$222.86 million) in the second quarter, while the figure of Lotte Chemical also decreased 50.6 percent to 346.10 billion won (US$288.37 million) over the same period. The securities industry estimates the third-quarter operating profit consensus of LG Chem and Lotte Chemical at 480.50 billion won (US$400.42 million) and 356.10 billion won (US$296.75 million), respectively.