A look back at highlights from 2015

While the countdown has begun for 2016, here is what made the headlines in petrochemical markets during 2015. The most striking development of the year was the fresh record lows in crude oil prices, followed by the macro-economic issues that affected trade negatively, increasing domestic capacity of China, Europe’s unprecedented production shutdowns, the trend ethylene tracked in Asia and the US as well as some major consolidations in the industry.

Crude Oil

Having already witnessed the sharpest decline in the post-2008 period, falling from $107/bbl to around $55/bbl in the second half of 2014, oil prices traded in the range of $40-60/bbl on NYMEX for the most part of 2015 before the $40/bbl threshold was broken in the last month of the year. Recent prices in December indicate the lowest levels seen since the beginning of 2009.

It is not only on NYMEX, but Brent futures also went below $40/bbl in December and the premium Brent carries over NYMEX has eroded recently.

The imminent end of sanctions on Iran is also expected to increase oil supplies as Iran is aiming to pump up its production up to 1 million barrels/day within six months of the lifting of sanctions

The weakness of crude oil prices has taken its toll on the financial position of US shale producers as bankruptcies among oil and gas companies have reached the highest level seen since the 2008 crisis. The same factor is also expected to cause a decline of more than 20% in oil investments in 2015 especially in high-cost regions like the US and Brazil, according to IEA

Macro-economic factors

The constant depreciation of currencies, particularly in emerging economies, was a hot topic in petrochemical markets as it has had a considerable impact on trade. The euro has ended 2015 with a depreciation of 9% against the US dollar before rebounding from a loss of 12 %. The Turkish lira recorded a much larger depreciation of 33% against the US dollar before ending 2015 with a relatively smaller depreciation of 27%. China’s Central Bank also devaluated the yuan for 3 days in a row in August in a surprising move, which was interpreted as a strong sign of the weakness of the world’s second largest economy.

In October, more depressing news came from China, where GDP for the third quarter fell below 7% for the first time since the first quarter of 2009. This was followed by the decision of China’s Central Bank to lower interest rates to fresh lows in an attempt to tackle the slowing economy.

Plunging crude oil as well as China’s slowing imports have also made themselves felt on the freight rates from Asia as players reported rates as low as $5-10/ton from Asia to Turkey in the second half of the year.

China’s growing coal based PP capacity

China continued to add more coal based capacity in 2015 as new plants came onstream. This was particularly evident in the PP market, which pushed domestic PP prices to the same levels with or even below import offers in China for the most part of 2015.

The same factor caused PP prices to post a larger decrease than that of PE both in Asia and the Middle East in the second half of the year.

Accordingly, Chinese coal based PP showed up occasionally in Southeast Asia while overseas suppliers to China also started to seek new export outlets . China’s homo PP imports for January-November also suggest a 7% decrease on a yearly basis, according to ChemOrbis Import Statistics, affirming the reduced appetite of China for PP imports.

Significant production issues across Europe

European polyolefins markets were hit by a significant number of production outages in the first half of 2015. There were force majeure declarations made one after another both for olefins and polyolefins from many major producers including Ineos, Borealis, Sabic, Total, LyondellBasell, Total and Versalis. Severe production issues stemming from the absence of these suppliers caused three digit hikes in the region for several months in a row until July. In the following three months, a downturn was in place, which was arrested by renewed production issues again in November. These also paved the way for price increases in Europe for November and December.

The numerous force majeure declarations in Europe attracted more imports to the region as traders in Turkey reported shifting their allocations to Europe due to better netbacks. Italy’s polymer imports gained 5% in the first three quarters of this year when compared to last year, according to ChemOrbis Import Statistics, confirming the region’s increased need for imports owing to long-lasting supply constraints.

Naphtha/ethylene

Asian ethylene has been rather tight for the most part of this year due to a heavy maintenance season in South Korea and Japan, which paved the way for a record high spread between spot ethylene and naphtha during April and July 2015.

Although spot ethylene prices dove down after July until mid-September, the same tightness factor has been helping Asian ethylene gain ground steadily since then despite the record lows in crude oil prices. The news that Shell declared force majeure from its cracker in Singapore in early December and that it may last three to six months added to the concerns about tight supplies in Asia.

The strength of the spot ethylene market was so visible that import HDPE and LLDPE prices to China traded below ethylene prices in December , which was interpreted as a strong indication of the imbalance of the markets.

Another important factor to watch was spot ethylene prices in the US. Unlike the fluctuations in spot ethylene prices in Asia and Europe, the spot ethylene market in the US continued to fall for the most part of 2015. At the end of the year, spot ethylene hit its lowest levels seen since early 2009, widening the gap between other regions to record highs.

Company updates, (re)emerging origins

The news that INEOS and Solvay announced the launch of their INOVYN joint venture on July 1 was a remarkable development in the formation of the PVC market in Europe. Before the end of the year, Dow Chemical and Du Pont also declared their plans to merge as the petrochemical industry has been facing consolidations over the years.

Following the start-up of Borouge’s 3 cracker and PE-4 plant in Ruwais, LDPE showed up from this plant both in Asia and Turkey

The re-emergence of Iran following the end of sanctions is also expected to change the balance of trade flows for petrochemicals with the country investing in more projects and focusing more on exports particularly to Europe.