Global Ethylene Prices Continue Their Bearish Rally Amid Weak Demand From the Downstream Industries
- 28-Sep-2022 6:00 PM
- Journalist: Jacob Kutchner
Towards the end of Q3, the Ethylene prices continued their downward trajectory in the Global market, supported by the sluggish demand from the downstream industries. The stable production rates in the major exporting countries, moderate inventory levels, uncertainties in China, macroeconomics vulnerability in the USA, and economic challenges across the European market have hampered the market growth of Ethylene.
The major producers of Ethylene in the APAC region are South Korea and Japan, while in Europe and North America, Germany and USA are the important producing and exporting countries.
In the Asian market, prices of Ethylene have plunged during the week ending September 23, 2022. Sufficient inventories coupled with weak demand from the downstream Polyethylene industries have supported the Ethylene prices to follow the downtrend across the regional market. On the raw material front, declining costs of the raw material Naphtha have resulted in the low production costs of Ethylene in the regional market. In addition, Korea Petrochemical Industry Co (KPIC), LG Chem, and Yoochun NCC (YNCC) in South Korea have planned to shut down their cracker due to maintenance turnaround. Currently, there are limited to no consequences of the Shutdown. Though, prolonged closure may affect supply dynamics in the coming quarter.
Japan has observed strong production levels during the last few months; according to estimates, Japan's Ethylene output hit a 7-month high in September 2022. However, Japan Petrochemical Industry Association (JPCA) has warned of production cuts in the coming months.
China is still going forward to implement further precautionary measures to battle another surge in pandemic cases in the country. The pandemic cases in China rose again in September 2022, and the government decided to implement pandemic restrictions. Therefore, demand for Polyethylene did not get enough time to rebound, and economic activities remained lulled. Thus, several market participants also termed buying sentiment for feedstock Ethylene as sluggish.
In the Indian market, according to market sources, the decline in upstream raw material Naphtha prices and fluctuating input costs have pushed the Ethylene offers to decline. Meanwhile, inventory levels remained firm in the domestic market, acting as a buffer to negate any price increase in the Indian sub-continent. In addition, Indian Oil Corp, Panipat, has planned to shut down their Naphtha (raw material) hydrocracker refinery for a revamp to raise its Ethylene production capacity. The cracker consumes about 2.3 million tonnes of Naphtha annually and produces 857,000 tonnes of Ethylene. INR has depreciated against the USD in the last couple of months but has limited to no impact on the Ethylene prices.
As of September 23, 2022, Ethylene prices have declined by 2.2% on a weekly basis and were assessed at INR 96650 per MT on an Ex-location basis. Ethylene prices in China have also tumbled, measuring a decline of 2.6% on a week-on-week basis, and settled at USD 1140 per MT on a CFR basis.
Since the Russia-Ukraine escalations, the European countries have faced strong headwinds due to the crunch in natural gas supply and high prices of the available material. The restricted supply of natural gas has inflicted downside risks on the manufacturing capacities of the downstream sectors. According to ChemAnalyst, Ethylene prices have continued to fall in the German market. The latest decline in the trend has been caused by a steady flow of cheaper imports from the Asian and North American regions. In addition, the domestic cost of production continues to remain high due to high energy and operating costs, resulting in weak output rates. In addition, an excessive slowdown in manufacturing output across Europe amid the energy crisis in the region. As per the data, Eurozone Manufacturing Purchasing Index (PMI) fell from 49.6 points to 48.5 points in September 2022. Also, the inflows of new orders fell as demand for Polyethylene continued to drop.
Furthermore, LyondellBasell has reduced its operating rates to 60% in Germany amidst weak demand and high natural gas prices. However, according to the market sources, major European companies, including chemical makers, are planning to shift operations to the US, citing the high operating costs in the European region. Meanwhile, the demand from the packaging industry has also deteriorated, leading to the average market transaction for Ethylene.
In the German market, Ethylene prices have dropped by more than 7% and settled at USD 820 per MT FD Hamburg on a week-on-week basis during the concluded week.
Meanwhile, in the USA market, inflationary pressures have dampened the downstream consumer sentiments. The Federal Reserve stated it would raise its interest rates by another 0.75 basis points tightening the monetary policy. As per the US Energy Information Administration (EIA) reports, the weekly availability of Natural gas among underground vessels increased in the USA; compared with the previous weeks, working gas storage was 2694 billion cubic feet, with a net increase of 54 billion cubic feet. In addition, the downstream market players have reported large stockpiles of unsold inventory, resulting in a cheaper spot market for Ethylene in the domestic market. The US market has reported ample inventory levels in the past months resulting from sustained weak outtakes from downstream Polyethylene and Glycol value chains. The performance of the packaging industry has been underwhelming during Q3; thus, the demand for PE and PP has remained weak throughout the last few months.
In the US, Ethylene prices have plummeted to USD 485 per MT on FOB basis as of September 23, 2022, measuring a drop of 1% weekly.
Ethylene prices have consistently decreased in the Asia Pacific region; however, the supply dynamics may shift balance as Japan, a key producer of Ethylene, has announced production cuts while LG Chem (South Korea) has declared force majeure on Ethylene exports which will be effective from October 1, 2022. The decline in supply and anticipated increase in demand in the upcoming month may result in an optimistic change in Ethylene prices in the region. Meanwhile, Korea Petrochemical Industry Co, LG Chem, and Yoochun NCC (YNCC) are expected to begin their cracker turnarounds in late September and early October 2022. The total offline production capacity is expected to be around 2 MTPA.
Natural gas prices have declined in the US market in the wake of the Shoulder season (a time between peak and off-peak seasons). The drop in energy prices is expected to catalyze the ease in inflation rates amid stringent monetary policy regulations by the Federal bank. Meanwhile, demand from the packaging industry is expected to strengthen ahead of the impending holiday season in Q4, increasing the consumption rates of Polyolefins. The rise in demand for downstream Polyethylene, along with the stable cost of production, is expected to catapult the feedstock Ethylene prices.
Europe has been facing its worse energy crisis in the last few months; however, as per several experts, the worst may be behind the energy market, as reflected by the recent decline in Natural gas prices. This may allow the market players to increase the output rates of downstream petrochemicals. The decline in energy prices is also expected to ease consumer sentiment, which is likely to improve the buying capacity of consumers. The imports from the North American and Asia Pacific region are expected to turn costly on the back of improved pricing sentiment in the respective markets resulting in costly imports on the European shores. Meanwhile, demand from the downstream Polyethylene may turn optimistic due to increased consumption from the packaging industry ahead of the holidays in the upcoming months. Increased demand, stable production costs, and costly imports are expected to increase Ethylene prices in the European market.