New feedstock pricing to raise petchems’ costs in Q1

New pricing of propane and butane will result in raising the cost of the feedstocks by 6 percent and 18 percent, respectively, an Argaam study found. 

Compared to the old pricing system, the cost of propane feedstock is 16 percent higher in January and 8 percent higher in February, but 5 percent lower in March. 

The March drop was attributed to the new pricing methodology, as the price of propane was fixed at the start of the month. Previously, the price was calculated according to the average naphtha benchmark prices throughout the month. 

A difference of $14 a ton for propane was observed between the two pricing systems in the first quarter. This amounts to an additional cost of $1.5 million to $2 million during the same period for each plant that produces propylene at an annual capacity of 400,000 to 500,000 tons. The estimated cost excludes the hike in electricity and utility tariffs imposed at the start of this year.

However, the financial impact of the new pricing system is seen to be limited since the prices of naphtha feedstock and gas liquids (propane and butane) are currently at 12-year lows. When their prices rebound, the gap between the old and new pricing systems will widen to reflect higher cost.

Propane is the main feedstock used by Advanced, Alujain, Sahara’s Al Waha factory and Saudi Polyolefin Co., which is a joint venture between National Industrialization Co. (Tasnee) and Sahara.

National Petrochemical Co. (Petrochem) and Yanbu National Petrochemical Co. (Yansab) use up to 60 percent of propane feedstock to power their cracker units. 

Propane also accounts for up to 25 percent of feedstock used by Saudi Basic Industries Corp. (SABIC).

Users of butane feedstock will assume a higher cost of 18 percent on average in the first quarter, compared with the previous prices.

SABIC and Saudi Kayan are the only companies that heavily rely on butane feedstock. Butane represents up to 85 percent of feedstock used by Kayan; however, the new prices will be applied to the company in 2017.

Previously, the prices of Saudi natural gas liquids (NGLs) such as propane and butane were set at a 28 percent discount compared with CFR Japan, excluding freight costs from the Port of Ras Tanura. The current discount is 20 percent to the export price for both gas liquids.

* Assuming USD 30/ton freight cost from Ras Tanura to Japan.

The hike in prices also extends to methane and ethane feedstocks, as well as the natural gas used as fuel to operate factories of all companies.

Ethane price was raised 133 percent to $1.75 per million thermal units. Methane and natural gas prices increased 67 percent to $1.25 from $ 0.75 a million thermal units.

The prices of ethane and methane, however, remain cheaper than other gas liquids such as propane and butane. For example, ethane at $1.75 a million MBTUs is about $95 a ton, less than half the prices of gas liquids.