The margins of petrochemical products such as ethylene have reached record lows and the industry is likely to have a hard time next year.
The ethylene margin recently became negative with the prices of downstream products such as polyethylene remaining stagnant. Besides, the paraxylene margin has remained sluggish throughout this year. China’s paraxylene self-sufficiency has exceeded 100 percent to adversely affect South Korean companies. This year and next year, China is estimated to increase its paraxylene production by at least 12 million tons.
The price of paraxylene is likely to keep falling as a number of petrochemical plants are scheduled to be built or expanded in Asia starting from early next year. This is predicted to limit any product margin recovery and it is said that the United States’ and China’s recent agreement on trade issues is not enough to make things better.
“The trade agreement is expected to result in an increase in petrochemical product demand and petrochemical companies’ business performance improvement, and yet those will not occur in the near future as the current conditions are the worst ever,” said an industry source, adding, “Any recovery will be possible only when industries such as construction and automobile recover.”
Under the circumstances, major petrochemical companies such as LG Chem are reducing their production and capacity utilization. Until recently, South Korean petrochemical companies ran their facilities at full capacity. With the margins at record lows, however, they are reducing their capacity utilization by 20 percent to 30 percent.