The future of Asian olefins is uncertain under the triple challenge

The Asian olefins industry is simultaneously facing the triple challenge
of high feedstock costs, continued release of new capacity and weak demand.
Recently, ICIS released a report that the profit margins of the vast majority of Asian producers are being severely squeezed
as a result.
At least from the end of 2022 to 2023, the "painful" period for Asian olefins producers on profits will continue
.

Since the second half of 2022, Asian olefin producers based on different feedstocks have been losing money
most of the time, according to ICIS.
Costs for ethylene and propylene producers in Asia have increased sharply due to high feedstock prices, while demand growth has been subdued and derivatives markets have been constrained by increased competition for capacity expansion
.
The third-quarter financial results of an Asian liquefied petroleum gas conglomerate chemical company showed that its net profit fell 46%
from a year earlier.
Asian producers using naphtha and propane as raw materials are also operating at low loads or even temporarily shutting
down.

As a result, the operating rate of ethylene and propylene in Asia has declined
significantly since the second half of 2022.
ICIS said that due to low margins, insufficient demand and increased capacity, the average operating rate of Asian olefins in 2022 will be lower than in
2021.
In the third quarter, the average operating rate of ethylene plants in Asia fell to 81%, down 6 percentage points
year-on-year.

According to ICIS's latest price forecast released in mid-October, ethylene prices in Asia will fluctuate
in a narrower range in 2023 compared to 2022.
Ethylene average prices in Northeast Asia are expected to rise slightly in
2023, driven by a slight improvement in short-term supply-demand imbalances.
ICIS's judgment is as follows: in terms of capacity expansion, ethylene production capacity in Asia is expected to grow by 8.
5% in 2023, down from 12.
7% in 2022
.
On the demand side, consumption growth of Asian end-users is expected to pick up further in 2023 under the premise of more dynamic and flexible COVID prevention and control measures
.
With the commissioning of derivative projects for purchased ethylene, new ethylene downstream demand will also be stimulated
.
As a result, ethylene margins in Northeast Asia are expected to improve in 2023 compared to
the second half of 2022.
However, ICIS believes that ethylene price gains in Asia will remain limited
given that energy prices will remain high next year and growing concerns about the risk of a global recession.
In addition, considering that 40% of the new ethylene capacity in 2023 is scheduled to come on stream at the beginning of the year, the spread between Asian naphtha and ethylene will remain low in the first quarter of 2023
.

The imbalance between supply and demand of propylene in Asia is even more serious
.
Also facing factors such as demand growth is not as fast as supply growth, and the external environment is not good, the Asian propylene market will also be affected
by the intensification of contradictions in its own industrial chain.
For the rest of the year and the beginning of 2023, propylene prices will be prone to fall and rise
.
While the supply is sufficient, the weak market of downstream major products will be transmitted to the propylene market
.
However, the room for propylene prices to fall will also be limited
by cost support.
From the second quarter of next year, propylene prices are expected to recover
.
Overall, ICIS expects the average price of propylene in 2023 to fall slightly compared with 2022, mainly affected by the global economic slowdown and intensified competition in the propylene industry chain, especially the downstream polypropylene (PP) market
.

For the PP market, ICIS said that in the case of poor profits, many new PP production capacity has not really been launched
in 2022.
Some manufacturers have opened olefin plants without putting into operation their supporting PP plants, and some PP projects that require external propylene mining have been stopped for operation
after commissioning.
If the propylene-PP price spread can be maintained at 60~80 US dollars / ton, it will increase the utilization rate of this part of the PP device, thereby supporting the price
of propylene.