After two-and-a-half tough years for the C6 aromatics value chain, Shell’s Alexander Farina offers some optimism for the long-term future of this business. Shell is a global producer and supplier of benzene, styrene and phenolacetone, the key building blocks for the C6 chain with a strategy that is focused on sustaining and strengthening position as a global industry leader. Shell is optimistic mainly because further along the C6 chain its major customers and their customers are confident that the materials and products made from or with aromatics will continue to be in demand, with new applications driving growth in a number of markets. There are numerous and complex challenges to be met, some relating to competition, others to supply, cost or sustainability issues. But, there are also significant opportunities for future growth if the supply chain remains flexible, competitive and creative. An impressionistic overview of the outlook for the C6 aromatics chain through 2011 and beyond is presented by him: Demand drivers: Aromatics are the feedstock for a diverse range of essential plastics, fibres, foams and resins that are used in automotive manufacturing, construction, clothing, appliances, IT equipment, cleaning products and pharmaceuticals. New uses and applications continue to be developed. Many of these products can enhance energy economy –by providing insulation or weight reduction, or both – and help to reduce CO2 emissions. Like most petrochemicals, aromatics suffered major demand disruptions in the global financial and economic meltdown of late 2008. Global styrene producers continue to grapple with average industry operating rates at around 85%, up from a post-1990 low in 2009 of 82%. Also, while phenol operating rates perked up to an estimated 85% in 2010, they averaged at 75% in 2009. Industry indicators continue to suggest strengthening demand: In 2010, estimated global benzene demand was around 41 mln tons, of which 4.5 mln tons were traded between regions. Currently, styrene production accounts for 52% of this, with main downstream uses in polystyrene, synthetic rubbers and plastics for applications ranging from household appliances and white goods, to IT products, automotive parts and insulation products for the construction sector. Around 20% of benzene is used (via cumene and phenol) to produce phenolic resins (for furniture and construction boards), and polycarbonates (for wide industrial applications) and considerable growth potential. Another 12% is used for cyclohexane to make nylon, primarily for sports and leisure products. About 3% is used in detergent surfactants. Since late 2008, two key C6 end-use markets – automotive manufacturing and construction – have been in a deep trough. But it is in these two key end-use markets, which are now slowly recovering, where much of the future growth in C6 value chain demand is likely to emerge. In large part, this will be because C6-derived products have the properties to meet the needs of a low-carbon and high energy cost world. Their low-weight and insulating properties can deliver significant reductions in energy consumption, which in turn lowers CO2 emissions. Meanwhile, the “processibility” properties of C6 products are enabling a variety of stronger, more flexible parts and products that meet the needs of a wide range of manufacturing industries. Given the importance of the styrenics chain for benzene, a closer look at what is likely to drive future demand: • Good long-term prospects for EPS due to its excellent insulating properties. Renewed demand growth is expected in the construction sector – in both new builds and refurbishments. Not only does EPS insulation significantly reduce heat lost by buildings in cold climates, lowering energy demand for heating, in hot climates it can help keep buildings cool, reducing energy usage for air-conditioning. • Use of styrenic polymers and polyurethanes is growing in automotive applications. In 2009, an American Chemistry Council (ACC) report estimated that the use of plastics and polymer composites in a typical passenger car rose from 27kg to over 150kg in the 40 year period to 2007. According to the ACC, over 50% of a typical car’s volume comprises polymers and composites, but only 10% of the weight. Shell estimates that the proportion of C6 value chain products going into the automotive sector is currently around 15% globally, with virtually no difference between the regions. • Benzene-derived polycarbonate (PC) is gaining a bigger share of the weight and performance market. Annual global PC demand climbed above 3 mln tons in 2010, and is growing at 6% pa. Although demand growth in CDs and optical media has slowed, applications in automotive components, electronics and sheeting or film are increasing rapidly. Automotive glazing demand is growing particularly fast. Polycarbonate is already used in headlamp, fog lamp and tailgate lenses, roof modules and fixed side windows in cars and trucks. Amid the ongoing demand prospects for the C6 value chain, the players along the value chain will need to work together to develop the products that take advantage of the performance and design properties of C6-based products, and particularly those addressing solutions for a low-carbon future. For the period 2011-2015, Shell and CMAI estimate potential annual benzene demand growth of 3.8%, which is underpinned by derivates demand growth, including 3.7% for styrene, 3.7% for cumene/phenol and 2.1% for aniline. Challenges - Some of the challenges faced by benzene: Though benzene will be characterised by supply and price volatility, nevertheless it remains competitive. In response to tightening mogas regulations, supply had been heavily impacted by the steady closure or mothballing of many of the toluene hydrodealkylation units that once provided “on purpose” production and “swing capacity”. Since then, benzene output has been mainly determined by gasoline manufacture and naphtha cracking, both of which generate benzene as a by-product. Before 2005, on-purpose swing capacity could add 20% to other benzene production. Today, it is nominally about 4%, but practically non-existent. New benzene capacity has come on-stream, but only as by-product of other manufacturing processes. In Asia-Pacific, new steam crackers and aromatics plants will have added around 4.5 mln tons of benzene capacity by 2015, while in the same period the Middle East is expected to have added 1.2 mln tons, three quarters of which will be refinery-derived. In both North America and Europe, benzene capacity expansion has been limited by the lack of demand growth for ethylene and paraxylene, although 600,000 tpa of additional benzene has been released in response to the MSAT regulations, stipulating a reduction in benzene levels in gasoline. In Central and Eastern Europe, capacity addition is limited as both regions currently have surplus benzene. Supply of aromatics feed has also been impacted by a number of factors including the shift towards lighter cracker diets, the relatively poor demand for polyolefins through late 2008 and 2009, and falls in gasoline demand. All of these have reduced supply of pygas and reformate. Current estimates suggest that benzene capacity may rise by just over 2% pa, but annual demand growth will be about 3%. One of the consequences of the loss of swing capacity is that benzene supply has shown a tendency to move very quickly from short to long or vice versa, depending on demand for olefins and transport fuels. In combination with high and fluctuating crude prices, the knock-on effect has been to make benzene prices much more volatile. One of the ways the industry has dealt with this volatility is by moving away from quarterly pricing to monthly adjustments. While monthly pricing does not fully mitigate price volatility, it does afford more rapid correction to upstream cost drivers, such as crude and naphtha prices, and enables much more rapid adjustments in cash management. Having seen a five-year cost advantage over propylene slowly slip away about 10 years ago, the post recession period has seen benzene regain this competitive edge, which has strengthened the cost position of PS against PP. Equally encouraging is that substitution of PS by PP seems to have reached a plateau, and estimates suggest global styrene demand will grow around 3% pa to 2020. Another consequence of the trend towards lighter cracker feed-slates is less C4 production, which has impacted butadiene costs for ABS producers. In 2010, European butadiene prices rose higher than ethylene for the first time ever, and US prices jumped by nearly 50% between January and July 2010. In large part, this is due to liquids cracking struggling to compete with ethane-based US and Middle Eastern crackers, thereby cutting availability of butadiene, which is dependent on heavy liquid feedstock. As a result, butadiene is very tight in the US. To-date, increased butadiene prices has however not impacted ABS/SBR demand. There are several reasons for this. Due to its performance and processing properties ABS is not easily substitutable, by alternatives such as PP or high-impact PS, and it still has a cost advantage over polycarbonate. Butadiene is also a relatively small cost component of ABS–at about 15%. Another issue impacting the C6 chain is differences in regional ethylene pricing. Until about 3 years ago, relatively high ethane prices were seriously undermining the competitiveness of US styrene production. However, with a significant fall in ethane costs, US competitiveness has completely turned around, enabling US styrene producers to revitalise some underused capacity and to export significant tonnages to Europe. Globally, styrene is currently long. Only 1-1.5 mln tons of new styrene capacity is announced to come on-stream after 2010, which is equivalent to demand growth for just one year. Operating rates are expected to recover steadily through 2011 and beyond. Currently, virtually all Middle Eastern styrene is absorbed by Asia-Pacific, primarily China, while some European demand is being met by US imports. However, should China ever reach its self sufficiency target, then low-cost Middle East production could heap pressures on European manufacturers. Like styrene, phenol has also taken a hammering since 2008. At one point, global industry average operating rates fell close to 75%, but through 2010 and into this year, demand has been more buoyant. Over the longer term, phenol demand is expected to grow by around 5% pa, mainly on increased demand for BPA for polycarbonate and epoxy resins. But new capacity coming on stream will mean fierce competition. Currently, the industry is witnessing widespread and ongoing industry restructuring as some plants- mainly older, small-scale units - are closed, while some long-established players like Dow have sold their businesses, or like BASF - are putting them into new, stand-alone structures. Overall, the balance of manufacturing is shifting from the West to Asia-Pacific. Shell, too, has been reducing its refining footprint worldwide and announced plans to rationalise assets, which will impact aromatics production in Europe. However, with the opening of a new complex in Singapore, Shell has increased benzene production in Asia-Pacific, reflecting demand growth in that region. Health, safety and environment (HSE)-related challenges will require close monitoring.