SE Asian petchem producers face prolonged shutdowns as weak margins bite

Market sources report that several Southeast Asian petrochemical producers have been facing commercial plant shutdowns as high costs and weak demand squeeze margins significantly. The industry is also burdened with supply glut, elevated inventory levels and ongoing destocking efforts. This heightened pressure on petrochemical companies reflects the industry’s growing need for restructuring and rationalization.

Weak market fundamentals force longer-than usual shutdowns

Malaysia’s Petronas Chemicals Olefins started a planned turnaround at its 400,000 tons/year ethylene cracker located at Kerteh in late September. The scheduled maintenance will last for 60 days, although it could be extended, depending on production margins, traders commented.

Malaysia’s Lotte Chemical Titan implemented a 10-day monthly turnaround on its HDPE film line in October. This will be a regular strategy applied for around ten days every month because of the pressure from the thin demand with no specified end to this practice, according to sources. Additionally, the company reportedly plans to halt production of its HDPE 7700 grade in 2025, with an official announcement anticipated soon.

JG Summit PC in the Philippines is reportedly considering a shutdown at their Batangas complex due to the weak outlook for ethylene and propylene chains. Industry resources remarked that the company’s upstream and downstream units at the complex are likely to restart in H1, 2025.

Siam Cement Group (SCG) has also suspended operations at its $5.4 billion Long Son Petrochemicals complex in Vietnam just one month after its launch. Although the new complex has been ready to produce commercially, there have been constant delays for almost a year. SCG indicated that the plant’s resumption will depend on global demand dynamics and did not provide a specific timeline for restarting operations. The company also forecasted that the chemicals market will continue to face challenges throughout fiscal year 2025.

Asian naphtha crackers’ ethylene margins are at negative zone

The disparity between the cash cost of ethylene from naphtha cracking and spot ethylene prices in Southeast Asia has been in the negative territory for more than a year, according to C-Macc and ChemOrbis data.

The lack of profitability of heavy naphtha feedstock coupled with oversupply and poor demand in olefins and polyolefins does not leave much chance for regional producers other than trimming their production. Many operators have indeed been running their crackers and downstream units at reduced rates for almost two years. However, the recent start-up of new capacity additions particularly in China as well as the growing existence of US cargoes in export markets – needless to say with competitive ethane feedstock advantage – seems to have exacerbated the bottleneck Southeast Asian producers have been facing and required larger-than usual supply cutbacks, resulting in prolonged shutdowns.

In a bid to lower these ‘unsustainably high’ production costs and improve raw material flexibility, SCG Chemicals decided to invest approximately $700 million in upgrades to its Long Son Petrochemicals complex to use US-sourced ethane with an expected project completion date in 2027.

Southeast Asian producers largely report losses in 2024

This uphill battle with negative margins has surely been finding reflection on financial results of petrochemical producers, as they have mostly incurred losses year-on-year this year.

Lotte Chemical Titan Holding Bhd posted a substantial net loss of RM246.4 million ($55.9 million) for the third quarter of 2024, marking a significant rise from the RM55.5 million ($12.4 million) net loss reported during the same quarter last year. This was the third consecutive quarter with losses after tax.

Indonesia’s petrochemical producer PT Chandra Asri Pacific Tbk (Chandra Asri) reported a net loss of $58.5 million in the first nine months of 2024, more than doubling the loss reported in the same period of last year.

SCG Chemicals, a subsidiary of Siam Cement Public Co. (SCG) in Thailand, reported a net loss of 1,480 million baht ($44 million) for the third quarter of 2024, reflecting a 19% increase in losses compared to the previous quarter. The company’s EBITDA also dropped by 50% quarter-on-quarter and 46% year-on-year, totaling 1,540 million baht ($45 million).

Thailand’s PTT Global Chemical Public Company Limited (PTTGC) also reported a net loss of Baht 19 billion ($545 million) for Q3 2024, compared to a net profit of Baht 1.4 billion ($40 million) in the same quarter last year and Baht 1.8 billion ($52 million) in Q2 2024.

Exceptions are there albeit a few

On the other hand, Malaysia’s Petronas Chemicals Olefins stood out among Southeast Asian producers with their positive financial results recorded in Q1 and Q2 this year, though it may be undertaking the planned shutdown to mitigate potential losses given the persistently weak global market fundamentals. The company’s Q3 results have not been released yet.

Likewise, JG Summit Holdings Inc. (JGS), based in the Philippines, remained in the profit zone, despite reporting a 39% year-on-year decline in net income, which fell to PHP3.1 billion ($53 million) for the third quarter of 2024.

Need for restructuring grows

As increasingly more producers have been suffering from negative margins, a remarkable restructuring is required before the ‘survival of the fittest’ occurs. This move may include plant closures, sell-offs, acquisitions and mergers as well as plans for a transition to more competitive feedstocks, as has been the case in Europe, another region gripped between disadvantaged feedstocks and subdued demand.