European Ethylene Prices Tumble in Early November 2023 as Downstream Demand Weakens

In early November, Ethylene prices showed a downward trend in the European market in the wake of low-cost pressure from feedstock Naphtha. While ample supply of Ethylene has had a bearing on the ongoing slide, overall subdued buying has exerted more downward pressure on the prices of Ethylene. This is due to underperforming downstream operations amid a still-fragile economy and uncertainty about geopolitical issues across the global market. Furthermore, European energy and petrochemical companies such as BASF have reported their financial results for the third quarter of 2023. The yearly comparisons mostly pointed to softer outcomes under the shadow of the weak economic dynamic that has been surrounding the industry.

Ethylene prices show a declining trend in Europe's largest economy, Germany. The spot Naphtha prices recorded monthly losses despite sharp fluctuations in the crude oil markets as a result of the geopolitical unrest unfolding in the Middle East, culminating in the decreased cost support for Ethylene in the domestic market. However, the inflation rate in Germany has declined from 4.3% in September to 3.8% in October, still above the European Central Bank's expectation of 2%. Meanwhile, the inquiries of Ethylene from the downstream Polyethylene industry have persistently dropped as consumption from the end-user plastic and packaging has remained sluggish in the domestic market. The spot market transactions were also average, as buyers were reluctant to procure the material at a very high cost. Furthermore, market players reported that weak national and global economies continue to weigh on downstream industries, with manufacturing activity constantly slowing down. In addition, fading prices of finished goods have cut into converters' profitability, limiting their purchase enthusiasm.

On the supply front, the availability of finished stock of Ethylene was sufficient in the domestic market as new orders declined. The manufacturing firms were operating at reduced rates (i.e., 70-75%) as demand from the downstream industry had not fully retrieved in the domestic market. In addition, market players reported that planned renovations were ongoing and are expected to be completed in November, and several plants were currently closed, which might impact supply efficiency in the near term. Overall, no supply chain bottlenecks or port congestion were reported by market players in the given time frame. Furthermore, a shipping company, Maersk, has stated its revenue has dropped by 47% to USD 12bn in Q3, compared to Q3 of 2022. This decline was attributed to a weak global economy, changing consumption patterns, and inventory adjustment, dragging freight volumes and commodity prices down. As a result, prices of Ethylene FD Hamburg were settled at USD 750/MT with a weekly decrement of 2.6% during the week ending 3rd November.

Furthermore, a major producer of Ethylene, BASF in Germany, recorded a net loss of €249 million ($264.4 million) in Q3 of 2023 compared to the €909 million profit during Q3 of 2022. The major factor behind the loss was the lower product price and volumes, as well as weaker global demand. In addition, BASF Group's sales in the third quarter of 2023 amounted to €15.7 billion, down by €6.2 billion compared with the prior-year period. As for the fourth quarter of 2023, BASF estimates that the macroeconomic outlook remains enormously uncertain in the current interest rate policy environment and in view of escalating geopolitical risks. Increasing raw materials prices, in particular, could weigh on demand and margins.

According to ChemAnalyst, in the coming weeks, the prices of Ethylene might rise in anticipation of a rise in feedstock Naphtha prices followed by high crude oil prices. However, demand for Ethylene from the downstream industry is not likely to improve until the H1 of 2024.