This operation process is represented by the industrial data represented by the total cost of high-density polyethylene supplied to China, which includes not only the production price advantage compared with the Middle East, but also other advantages such as freight and customs duties. On this basis, the effective cash cost of various factors in global production capacity can be determined. This also shows that although typical producers in the Middle East can supply at the cheapest price, there is still a long way to go to become a large local ethylene producer. Marginal producers are not importers. However, the raw material supply of producers with weak capacity is always in a precarious predicament, while those producers with high added-value capacity can become decisive elements and master pricing power.
Source: Ministry of Energy and Environment, 2008.
In the Middle East, the price of natural gas raw materials is lower than the consumer market. The cost of ethane is related to the fuel price in those developed markets-petrochemical products depending on the price of liquefied petroleum gas in the Middle East can have a price advantage.
Source: MIF, 2007; MEED, 2008.
The cost of propane in Saudi Arabia is related to the price in the Asian market. The price advantage depends on the price of oil, that is, the price of naphtha in other regions.
Ethane continues to provide the basis for the competitive advantage of ethylene products in the Middle East. People can use a variety of raw materials to produce ethylene, and the price and output of each raw material are variables. The most commonly used raw material is naphtha, which is a limited refined oil, but it is of little value when applied to gasoline processing. Using naphtha can choose the best path of petrochemical production. Naphtha is the main petrochemical raw material used in Europe and Asia.
Source of ethylene production cost: WER, 2007; MEED, 2008.
Global production of ethylene raw materials
Production of Ethylene Raw Materials in the Middle East
By 20 10, ethane production will be relied on to maintain a large proportion of new capacity in global production, because it has a special price advantage in the Middle East, but the basic capacity of naphtha is increasing, which is expected to account for 55% of global ethylene production raw materials. The main driving force of these growth comes from the rapid growth of demand in the Far East. In this area, due to the growth of refining capacity, it is difficult to give full play to the advantages of natural gas, and oil has become the main source of raw materials for production: WER, 2007; MEED, 2008. Like most commodities, the cost of ethylene is closely related to supply and demand. When the price is high, marginal suppliers will set the price for each region, which can be alleviated by improving the ability of each region to import ethylene or ethylene derivatives (which may replace local raw materials). The following figure shows several clear pure transaction flows (the wide columns in the figure indicate relative importance).
Global pure transaction flow of polypropylene Source: ITP, 2006; 20 12 forecast by Basell in 2008.
The petrochemical products of the members of the Cooperation Council for the Arab States of the Gulf have established their leading position in the world and defined the prospect of the largest industrial scale. This can well explain how the member companies of the Cooperation Council for the Arab States of the Gulf occupy a dominant position in the petrochemical field, that is, how they hold the first place in the average cracking capacity. The ethane production capacity in the Middle East will provide a competitive advantage for all enterprises that produce petrochemical products from ethylene. Ethylene can be traded in bulk in some regions (participating in transactions in Southeast Asia, China and Northwest Europe), but the regional production capacity depends on the connection mode with import terminals or the pipeline capacity for transporting natural gas to this region. This pipeline system is quite developed in the Gulf of Mexico in the United States, but it is very poor in Western Europe (Rhine Delta and inland), which makes derivatives manufacturers buy a lot of ethylene from the wholesale market through third parties. But in fact, the security of this source of goods is not good, and the infrastructure of this trading market is quite limited. Therefore, ethylene and its derivatives are highly integrated for trading.
With the expansion of ethylene plant scale, the degree of this combination tends to increase. At present, the ethylene production capacity of the new plant has reached 6.5438+0.4 million tons/year. From the commercial point of view, it is unrealistic to rely on the third party to provide a large number of raw materials for production, because this will make the newly-built ethylene plant face the dilemma of raw materials shortage. Traditionally, a long-term contract has included the quantity that can be confirmed, but in fact, in the final proposal, there is still great flexibility about the quantity, which can fluctuate between the maximum quantity and the minimum quantity agreed. Some natural gas can be sold in the retail market without the price stipulated in the contract, but it will also increase the price risk and the uncertainty of natural gas quantity calculation, so people tend to develop a large-scale and comprehensive trading market, which can maintain a good balance between olefin production capacity and reliable downstream demand.
In order to evaluate the standard of profit and investment, the petrochemical industry uses the concept of industrial profit, especially in three regions: the Gulf of Mexico in the United States, northwest Europe and Southeast Asia. Industrial profits can usually be obtained from the regional ethylene price plus the book income of any by-products MINUS the price of raw materials. In this regard, we can track the basic data every month and then get the statistical results about industrial profits.
Industrial profit is variable, but it can reflect the current and foreseeable future supply and demand balance. With the efforts of consultants and companies, although this method has been widely used, there are still some problems in using industry profits as the basis of industry analysis. The first problem we have to face is that when calculating the industrial profit, we did not take into account the huge changes in the output of each cracking unit. The situation of each cracking unit is different, and the output of each cracking unit will also change, depending on the selected raw materials.
However, according to the assumed increase or decrease of industrial profits, benefits can still be obtained, which depends on the technical level of the factory. Industrial profit can dynamically observe the overall advantages and disadvantages of petrochemical industry. In these industrial sectors, commodities are in circulation, that is to say, the importance of a certain position in the price trend lies in that it can be used to evaluate the company's competitive position and its competitive comparative advantage. The second problem is that it only reflects the main cash costs of exports and imports, but does not include the fixed costs related to factories, including cash and non-cash costs, rather than energy costs.