Petrochemicals expected to be more stable in 2021

Following a year that was anything but predictable, the petrochemicals market is ready for a more stabilizing 2021.

Good news certainly appears to be tucked into the weeks and months ahead, especially since the gas and oil market appears to be rebounding in the wake of the COVID-19 pandemic. But challenges lay ahead as well.

For benzene, one of the major issues appears to be the gas market isn't recovering quickly enough, according to IHS Markit analysts who provided industry insights during the World Petrochemical Conference, held virtually March 8-12.

"Gasoline represents a challenge," said Pablo Giorgi, IHS Markit's executive director for BXT. "Last year, gasoline saw a steep decline. And while the overall market is recovering, it is not recovering at the same pace as petrochemicals."

Last year was a particularly difficult one for gasoline, which saw the bottom fall out during the early months of the pandemic. But the coronavirus and its impacts aside, the industry had been bracing for downward trends.

"Gas demand in the U.S., our IHS experts say, peaked in 2018," Giorgi said. "But from then on, we should see decreasing gas demand in the U.S. with higher efficiency consumption, not only from the electrification of motor fleets, but by the efficiency of regular engines and the expansion of hybrid engines."

Decreased gasoline production could put a strain on benzene supplies even as demand continues to rise. This could significantly boost production costs for benzene and its derivatives because the operational costs for refining will have to be absorbed by those markets.

On the other hand, there are some factors that play favorably for the benzene market. The most encouraging would lie in loosening regulations. Those regulations could open the door for continued recovery, which ultimately would position the benzene market for growth, both in terms of quantity and lower production costs.

Tale of two halves

For isocyanates, 2020 transformed into a Jekyll-and-Hyde kind of year, according to James Elliott, an IHS Markit principal analyst, who called it "volatile and chaotic."

"In the first half of 2020, supply was ample and healthy while demand was lackluster," Elliott said of the isocyanate market. "In the second half of the year, supply shortened, and demand rocketed—and it has remained really, really strong."

The back and forth of supply and demand likely will continue to be a challenge in the years ahead, but Elliott is confident that there won't be any shortages, at least for the medium term.

A major reason for that is capacity expansions planned in China. The country is poised to add enough capacity to allow for exports and has targeted the U.S. as one potential market.

Elliott also isn't ruling out additional capacity growth in the U.S.

"I think China is one of the fastest-growing countries in the world for MDI and TDI," Elliott said. "(But) future capacity in the U.S. definitely is possible as well in the MDI market and the TDI market."

While Elliott remains positive regarding the isocyanate market, there is one trend that could change the game: refinery closures. To date, he said, those closures haven't had an significant impact in the U.S.

"As of now, the U.S. market will not be affected that much in the short term," Elliott said, "but the bigger question is: How is this trend going to develop?"

Styrene set for growth

China plans to be a major player in the isocyanate market, are nothing compared to its plans for styrene. Peter Feng, IHS Markit's executive director of aromatics, said China is bracing for a styrene capacity explosion, which makes the long-term outlook for the market extremely favorable.

"China is setting up 8.7 million metric tons of styrene," Feng said. "That is more than all of the styrene capacity in North America, so a lot of capacity is coming."

Feng notes that styrene capacity also grew globally in 2020, but it may not have been noticed because it was drowned out by other stifling pandemic effects.

"We do have some short-term supply issues that are overwhelming, so you don't see it," Feng said, "but the capacity is still going to come, and it will start (picking up) through 2023."

That capacity will be important, especially as demand continues to grow. In 2021, Feng is expecting demand to grow by about 3 percent compared to 2020.