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Excess capacity may lead to bloodbath in ethylene industry

Nov '09
As new ethylene plants in China, Taiwan, the Middle East and other parts of the world are gradually put into operation, ethylene supply in the international market is expected to be absolutely in excess.

According to the deliberations at a recent summit conference in China, this situation of over-capacity is expected to lead to a consolidation in the ethylene producing sector as well as amongst downstream consumers of ethylene.

Currently raw materials of ethylene are mainly derived from naphtha and ethane. Current international crude oil prices are ruling at a high level and developmental costs in the Middle East are lowest in the world, due to geological conditions and resource advantages.

All these factors have therefore; led to a rapid expansion of the ethylene capacity in the Middle East region along with other countries like China and Taiwan, due to the huge demand for ethylene generated in the last few years.

As per the expansion and new capacity plans of ethylene producers in the Middle East, the annual capacity growth of ethylene is expected to be around 7-8 percent, far beyond demand growth projection of 3 percent, that too in normal economic conditions.

Demand growth for ethylene may be negative in 2009, due to global economic recession caused by the financial tsunami in September 2008 and the production capacity appears seriously superfluous, which will have significant implication on propylene, other multi-carbon products and their downstream derivatives markets in the future.

Excess capacity tends to lead to intense competition in the market and which will ultimately lead to a bloodbath amongst global ethylene industry.

Fibre2fashion News Desk - India

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