Asia’s LPG Cracking Volume to Rise in July on Cracker Restarts, FM Lifts: OPIS Poll
Asia’s flexible crackers are expected to raise LPG cracking volumes in July, as some have restarted from outages or lifted force majeures, in signs that the petrochemical market has gradually found workarounds to mitigate the supply gap resulting from the Middle East upheaval, the latest monthly OPIS cracking survey shows.
July’s planned cracking volumes are estimated at 273,000 metric tons of propane and 124,000 mt of butane, while June’s planned volumes are expected at 257,000 mt of propane and 136,000 mt of butane. Both projections mark a rise from actual May cracking volumes, where propane stood at 192,000 mt and butane at 97,000 mt.
The higher volumes come despite the unfavorable cracking economy for LPG. The Far East propane to Japan naphtha swap spread, an indicator of particular interest to producers in assessing the cracking economy between naphtha and propane, was pegged at $43/mt for June and a $17/mt discount for July. Typically, producers would be motivated to crack LPG rather than naphtha when the spread is wider than a $50/mt discount.
“Gas (became) expensive as deliveries faced cancellations from the U.S., which went some way to explaining the currently positive spread with naphtha,” a Singapore-based producer source said.
In contrast, price slumps triggered by physical weakness have been seen in the alternative feedstock naphtha market, which has prompted many buyers to return to the spot market by issuing public tenders.
Still, some flexible crackers in Asia surveyed by OPIS plan to lift LPG cracking activities, contributing to the higher volumes in the coming months of June and July. This is driven primarily by plant recoveries from the Iran supply shock, which have boosted overall operation rates and the resulting demand for feedstocks, rather than favorable LPG economics, OPIS understands.
Mailiao-based Formosa Petrochemical Corp. has lifted a force majeure on its olefins division, effective June 3, following a force majeure declared on March 9 due to an Iran-related naphtha shortage. Stable production has since returned, according to the company. It currently runs its No. 2 cracker near full capacity, with the other two last known to have remained offline.
Similarly, Lotte Chemical resumed operations at its Yeosu cracker on May 27, after a two-month maintenance that started in late March due to difficulties securing feedstock. The restart came ahead of the original early June schedule, OPIS reported previously.
Still, supply headwinds persist, and demand destruction is still weighing on the whole petrochemical sector as the Middle East turmoil has forced downstream to cut back more production than upstream.
In Japan, Maruzen Chemical shut its cracker on May 10 due to low demand from downstream, according to a company source. It remains unclear when the cracker will restart, but the source indicated that this is likely to be in July or later.
The Chiba-based cracker has a nameplate capacity of 525,000 mt per year of ethylene and 336,000 mt/year of propylene. Its joint venture with Sumitomo Chemical and Keiyo Ethylene, meanwhile, maintains an operation rate of around 75%.
The demand lull has already been reflected in cracking activities in Japan, where butane is traditionally the preferred feedstock. Defying the uptrend observed in the broader market, Japan’s planned cracking volume stands at 37,000 mt each for June and July, down modestly from the actual cracked volume of 40,000 mt in May, according to the survey.
—Reporting by Yiwen Ju, yju@opisnet.com and Cheryl Lee, clee@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com