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Asia petchem makers maintain run cuts amid weak China demand, oil price uncertainty

Even after an explosion idled a massive Asian petrochemicals complex, most petchem makers in the region won’t up output from current low levels because sluggish demand from China will mean there is no supply gap, industry sources said.

While feedstock prices have dropped from January highs that prompted many Asia petchem producers to cut production runs, they said the combined impact of lower inputs and a six-month outage at the giant South Korean plant hit by the blast still won’t be enough to stoke an uptick in production.

That’s because China, the biggest petchem consumer in the region, is only now beginning its recovery from the economic shutdown caused by the coronavirus epidemic, while growth in the world’s number 2 economy was already comparatively sluggish.

“Downstream product and cracker margins are still weak, and with the key Chinese market starting to show some signs of recovery in March … the overall demand situation is still unclear for the time being,” said Energy Aspects analyst Aaron Cheong.

“Time will also be needed to work down the high inventory levels which were built up over the last month,” he added.

The restrained mood in the industry comes after South Korea’s Lotte Chemical shut its 1.1 million tonnes per year (tpy) cracking complex in Daesan, on March 4 after an explosion and it could down for six months.

The complex is the fifth-largest cracking unit in South Korea, and one of the biggest in all of Asia, based on Reuters data.

Petrochemical makers that cut output runs in January include South Korea’s KPIC, Japan’s JXTG Nippon Oil & Energy Corp, Maruzen and Showa Denko, Indonesia’s Chandra Asri, Singapore’s PCS and Malaysia’s Titan.

Titan and JXTG, however, are among some of the crackers that have scheduled maintenance this month while PCS and Showa Denko have restored cracker runs to nearly full tilt and maximum mode respectively this month, industry sources said.

But South Korea’s LG Chem has decided this month to cut its runs to 95%, a company spokesman said.

Taiwan’s Formosa, also Asia’s top naphtha importer, has also joined the bandwagon by cutting runs this month.

Adding to the uncertainty for the petchem sector on Monday was the near-30% crash in crude oil prices sparked by a price war between Saudi and Russia.

“This (the dive in oil prices), in my opinion, is the start of a recession,” said one industry source who tracks petrochemicals, declining to be identified because he’s not authorised to speak to the media.
Source: Reuters (Reporting by Seng Li Peng in Singapore and Jane Chung in Seoul; Editing by Kenneth Maxwell)

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