In an ominous sign for producers of the chemicals used in plastic packaging, polyester clothing and auto parts, refiners' profit margins on processing naphtha to make ethylene turned negative last week for the first time since October.The profit crunch is being driven by China's refiners boosting output of olefins such as ethylene to offset an expected decline in sales of petrol and diesel as electric vehicle take-up accelerates.
Global demand for ethylene and propylene is forecast to surge 29% from 2023 to 426.8 million metric tons by 2030, while capacity is expected to jump 25% from 2023 to 485.9 million metric tons by 2030, research firm Wood Mackenzie estimates. New capacity in China is expected to make up more than half of that growth, according to the International Energy Agency.In 2023, WoodMac sees China's output growth creating a local surplus of 4.24 million metric tons of ethylene and an even bigger oversupply of propylene at 8.69 million metric tons.
"The surplus of olefins will be pushed onto the water to clear elsewhere in Asia or further afield in Europe and the U.S. at steep discounts," Energy Aspects analysts said in a note. "This poses more risk to utilisation rates in the rest of Asia and Europe, which are more sensitive to margin compression."
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