European Ethylene Prices Plunge Despite Inadequate Inventories, While US Sees Unexpected Surge

Despite the limited supplies, Ethylene prices have persistently dropped in the European market during the second week of October 2023. The price decline was attributed to weak cost pressure from feedstock and volatile energy prices coupled with lukewarm demand. However, in the US market, Ethylene prices have unexpectedly increased, supported by high energy prices and improved demand dynamics.

Ethylene prices have demonstrated a marginal fall of around USD 10/MT in the German market as demand and supply remained balanced in the domestic market. Regardless of the high global crude oil prices, Naphtha prices have settled on the lower side amid weak demand from the terminal market, culminating in the decreased cost support for Ethylene. In addition, demand for Ethylene from the downstream Polyethylene industry has remained inactive amidst the sluggish consumption from the plastic and packaging industry amid high inflationary pressure. Market participants reported that the lack of demand kept exerting pressure on the seller’s side as buyers either made limited purchases when necessary or stayed in a wait-and-see stance in anticipation of additional drops. On the other hand, the material availability was unsatisfactory as the European producers faced razor-thin or negative margins amid high energy prices. Lowering run rates helped cancel out lethargic end-user demand but also burdened producer margins. Certainly, converters have hesitated to stock up on material despite firmer expectations for October. Meanwhile, imports from the Asian and Middle East have also slowed down in the German ports amid low operating rates, which resulted in a supply shortage in the exporting market. Overall, due to inadequate demand from the domestic market, manufacturers were unable to increase Ethylene prices in line with the high energy costs. As a ripple effect, prices of Ethylene FD Hamburg were settled at USD 790/MT during the week ending 13th October.

However, a significant rise in prices of Ethylene was observed last week in the US market due to high export queries and elevated global crude oil prices. However, the US producers use natural gas to produce Ethylene, unlike other global key players. Thus, US producers were observed taking advantage of high crude oil prices. On the other hand, domestic demand for Ethylene remains down from 2022 levels now it has started to improve albeit at a smaller pace which further encourages the manufacturers to increase Ethylene prices. In addition, the manufacturing firms were operating at normal rates. The level of inventories was also sufficient to cater to overall demand. However, market players report that the future seems gloomy for Ethylene producers in the USA, as upcoming winters might impact the pricing dynamics of the feedstock Natural gas. Therefore, Ethylene spot FOB US Gulf prices were settled at USD 485/MT with a week-on-week increment of USD 20/MT during the same time frame.

As per ChemAnalyst, Ethylene prices are likely to drop in the European market due to further expectations of weak downstream demand. The crude oil prices are anticipated to drop, which might ease the prices of feedstock Naphtha. However, in the US market, Ethylene prices might increase due to high feedstock Ethane prices. Natural gas prices are also anticipated to increase on account of supply shortages.