China is on track to import record-high volumes of ethane from the United States this month as Chinese and other Asian petrochemicals producers rush to secure replacement feedstock amid plunging naphtha and liquefied petroleum gas (LPG) supply from the Middle East.
China is expected to import as many as 800,000 tons of U.S. ethane in April, which would be a record high for any month and about 60% higher compared than the usual monthly imports of the feedstock from the United States, per estimates from Chinese consultancy JLC cited by Bloomberg.
U.S. ethane could be used as an alternative to naphtha and LPG feedstocks for some petrochemical processes as the war in the Middle East has slashed most of the feedstock for Asian companies.
Across Asia, shortages of naphtha and other key petrochemicals feedstocks due to the Iran war have already forced petrochemicals firms to curb output. Asia’s petrochemicals sector is highly dependent on naphtha, liquefied petroleum gas (LPG), and methanol from the Persian Gulf.
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So the war in the Middle East is creating a major supply shock in Asia, which is the most vulnerable to supply disruptions from the Gulf region, trade credit insurance group Coface said last month.
“With 60 to 70% of Asian naphtha passing through Hormuz, a prolonged disruption could redefine flows, costs and, perhaps, the very geography of the global petrochemical industry,” said Joe Douaihy, sector economist, Coface.
Commodity intelligence firm ICIS noted in the second week of the war that “Asia’s petrochemical dominance sits atop a feedstock system that is dangerously concentrated. A single geopolitical shock can reverberate across an entire industrial continent.”
U.S. ethane was a major part of the U.S.-China trade war last year, when the Trump Administration restricted for several months exports to China amid the bitter trade row.
With supplies restored last summer, ethane from the U.S. has become a preferred feedstock of China’s makers of ethylene, the building block of many plastic products.
The Middle East war is now set to further increase Chinese dependence on American ethane supplies.
By Charles Kennedy for Oilprice.com
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