December 2016 Surfactant Review
Phrase of the month? “Fake News”. That is not what you will find here. With the invaluable support of my good friends at ICIS, I am able to bring you the real news about what happened this last month in the surfactants markets. We have a companion blog posting on a 2016 Retrospective, which has hardly anything to do with surfactant news, focused rather on my thoughts on the year, on a thousand years of history and some interesting music for your contemplation. That blog post is here at this link.
First a commercial, which I permit you to skip right now, by going to the next paragraph. A lot of what we talk about in this blog (and that includes the music) is brought to life in our surfactant conferences which are produced around the world and throughout the year. In 2017, we will be in New York, Western Europe, Mumbai and Singapore. Check our surfactants portal here for updated information. As always, we bring you original content and the best networking opportunities in the industry. New York in May, sees our first awards ceremony and a number of first-time ever speakers. We’re in largest ballroom in Jersey City and it will sell out. End of commercial.
Now the (real) news:
ICIS’s Al Greenwood continues to cement his reputation as the world’s expert on the Mexican chemical industry with a superb piece on the new Pemex cracker. Mexico’s Grupo Alfa is the “most likely partner” for Pemex’s planned new ethane/propane (E/P) cracker, according Al’s December 1 article, drawing on an interview with consulting firm, Grupo Texne. . “Alfa was already negotiating with Pemex on broadening the capacity of the Morelos cracker to supply an EO/EG [ethylene oxide/ethylene glycol] plant. The difference is that now they will be using propane feedstock as well,” said the general manager of Mexico-based consultancy Grupo Texne. The sorry state of Mexican ethane supply could improve in the next decade, as shown by forecasts for ethane rejection. Ethane rejection is a phenomena in which the feedstock is not extracted from the natural gas stream. Instead, it is left in the stream and burned as a fuel. With the exception of 2020, ethane rejection should remain at 20,000 bbl/day or below from now until 2021, he noted. By 2022, however, ethane rejection should reach 38,000 bbl/day and continue increasing through 2028, the last year of Texne’s forecast. Rising ethane rejection indicates that Mexico will have more than enough of the feedstock for its crackers. All of Mexico’s crackers use ethane as a feedstock. By the next decade, forecasts call for Mexico to increase oil production. This increase would follow from Mexico’s recent energy reforms, which allowed companies other than state producer Pemex to drill for oil.
Higher oil production should increase supplies of associated gas and, consequently, ethane. If the forecasts come true, it would reverse years of declines in Mexican oil production. This was caused by maturing fields and budget cuts at Pemex. OK so let’s see. The key, which I have bolded above, is for the State owned company to give up state control over drilling and to allow other companies (quite possibly overseas entities) to drill for oil. A State company giving up state control? It has happened but never without a struggle..
Meanwhile by way of contrast, showing what good old fashioned private enterprise can do if allowed: ICIS reported that the average rig count in the US and Canadian oil and gas industries for November was up sequentially from October. The average US oil and gas industry rig count for November was 580 – up 36 from 544 in October, but down 180 from 760 in November 2015, according to data from Baker Hughes. In Canada, the rig count for November was 173 – up 17 from 156 in October, but down five from 178 in November 2015. November’s worldwide rig count was 1,678 – up 58 from 1,620 in October, but down 369 from 2,047 in November 2015. The rig count is seen as an important indicator of activity and investment in the oil and gas sector. The rig count also reflects demand for oilfield chemicals, including hydrochloric acid (HCl), epoxy resins, triethylene glycol (TEG) and certain types of surfactants. The Baker Hughes rig count monitors the number of drilling rigs actively exploring for or developing oil or natural gas in the US, Canada and the international market. Baker Hughes has issued its rig counts since 1944. Check out the source data here. It is an excellent and well used capitalist tool.
EO pricing in the US continues its volatile path. ICIS reported that contract prices for November fell by 6.8% on the back of a 14.8% decrease in feedstock ethylene contracts for November. November EO contract prices were assessed at 53.20-62.70 cents/lb ($1,173-1,382/tonne) FOB from 57.40-66.90 cents/lb FOB in October. US ethylene contracts settled at 30.25 cents/lb DEL, a 5.25 cent/lb decrease from 35.50 cents/lb in October.
Meanwhile tight EO in Asia pointed to higher prices for ethoxylates as reported by ICIS. Deals for December-loading drummed cargoes were heard at yuan (CNY) 13,000-13,400/tonne EXWH (ex-warehouse) east China at the beginning of December. Supply remained tight on limited availability of feedstock fatty alcohol (C12-14), whose prices had risen last week. FAE spot prices (moles 7 and 9, drummed) were last assessed at CNY13,000-13,200/tonne EXWH east China on 30 November, according to ICIS data.
As the month opened, the delicate dance that is the first quarter fatty alcohol and acid contract negotiations started. ICIS notes that the movement of upstream tallow and palm oils prices through the fourth quarter is the main focus of the discussions. A rise in feedstock prices was behind fatty acids and alcohols price hikes in the fourth quarter. Both feedstocks have been on the rise since early October, partly because of a rise in the US dollar over the period, although the increase in tallow prices is comparatively limited. Consequently, there is some level of consensus that fatty acids and alcohols prices will go up in Q1 2017. Feedstock tallow prices have been on the rise because of competitive demand from the energy sector, supply issues from inefficient production and on the back of a spike in alternative feedstock, vegetable oils. The tallow market is balanced to tight. Feedstock palm oil and palm kernel oil (PKO) prices have also been on an upward trajectory, driven by market shortage. Heat from El Nino this year has adversely affected PKO production and yields in Indonesia and Malaysia, and tightened the market.
ICIS follows up with an interesting prognosis for the US fatty alcohols market in early 2017. According to an article by Judith Taylor, feedstock pressures will continue to push on US mid-cut detergent range fatty alcohols moving into the first quarter of 2017. Benchmark lows marked the first quarter of 2016 as C12-14 natural fatty alcohols were broadly oversupplied and at least one new importer entered the US market with aggressive pricing. But weather-related issues in the key Asian natural alcohol production region pushed feedstock palm kernel oil (PKO) prices strongly up, with this trend continuing throughout the year. Indications for 2017 suggest that feedstock pressure from high PKO prices are likely to continue at least in the first quarter as prices remain around the $1,500/tonne level for the oil. US buyers are cautious about the first quarter, after taking strong double-digit increases in the third and fourth quarters of 2016. First-quarter contract negotiations typically take place in December, with settlements generally completing by the first full week of January.
The much anticipated wave of US ethylene crackers starts to come on-shore next year (2017) and ICIS notes some of the key events which you should be looking out for. Five crackers are expected to start up in 2017, including the restart of an idled unit by Indorama, according to ICIS. In all, they will add 7m tonnes/year of capacity.
Here’s the lineup:
|Capacity / MT||Location|
|Chevron Phillips Chemical||1.5m||Cedar Bayou, TX||H2 2017|
|ExxonMobil Chemical||1.5m||Baytown, TX||H2 2017|
|Dow Chemical||1.5m||Freeport, TX||mid-2017|
|Occidental Chemical/Mexichem||544,000||Ingleside, TX||Q1 2017|
|Indorama||370,000||Lake Charles, LA||Q4 2017|
The Indorama cracker will supply feedstock for its ethylene oxide (EO) production, allowing it to become an integrated US producer of polyethylene terephthalate (PET). Occidental Chemical and Mexichem will use the ethylene from its cracker to supply feedstock to a nearby vinyl chloride monomer (VCM) plant. The VCM will then be shipped to Mexichem's polyvinyl chloride (PVC) plants in Latin America.
The other crackers will be integrated with PE plants that will start up in 2017.
Speaking of “Fake News”: As I scan my google news feed for other items on surfactants and oleochemicals, I realize that I get at least 4 notifications per day on new market research reports published in our field. Of dubious quality, I might add. One such report actually promised to give me the latest news and insights into the company, Huish ! OK then, thanks for that trip down memory lane.. If you really need proper market research information, I urge you to stick to the known and trusted sources like Colin A Houston, Kline, Nexant et al, who actually know what they are talking about. Those others? well their breathless tone reminds me of..
That’s it for December. If you want my (non-surfactant) thoughts on 2016 along with some music for your delectation, hop over to the 2016 retrospective here. Again, if you like these blogs, all this news, commentary and analysis is brought to life at our conferences, which I believe are truly unique in the industry. I hope very much to see you in May in New York, if not before.
Happy New Year!