Global Linear Alpha Olefins (LAO) Prices Continue to Surge Amidst Weak Demand

Linear Alpha Olefin (LAO) prices continue to surge amidst weak demand across the Globe. The bullish trend in prices of LAO was observed in the midst of August and still continues to surge despite Global demand continuing to remain muted and dropping due to inflated material and energy costs. Feedstock ethylene continues to show a bullish trend in October 2023 despite weakening global demand for Polyethylene products. Major Global LAO producers have also been struggling to keep up the positive cash flows as the rising input costs and increased interest rates for working capital continue to pull down the operational capacity in an already-demand deficit period. The Israel-Hamas conflict has also added to the worries across the Globe of a reliable supply of feedstocks, including LAO and crude, while major countries like Qatar and Saudi Arabia continue to ensure stable supply.

In European markets, LAO C16-18 FD Germany prices were recorded at around USD 1460/MT, a 20% jump in prices. Europe's natural gas inventory stocks continue to stay on the higher end before the Winter hits the continent; natural gas prices continue to fluctuate and show a bullish trend in the Globe. According to Cefic collated data, prices of LAO have continued to deflate YoY basis up to the tune of 38% while they still continue to stay inflated over pre-COVID levels and other peer competitors from the Middle East and North America. Demand for LAO continues to be subdued, with major sectors like construction, automobile, and retail continuing to remain weak. According to experts, one major effect is that the inflationary trend is catching up again in Europe. OECD recorded a rise in inflation to 6.4%, especially a rise in the core sector, which is a cause of concern in Europe. As inflation continues to soar in Europe, the European Central Bank is expected to move forward with its hawkish monetary policy to curb the rising prices. LAO prices continue to stay inflated due to elevated energy and material costs coupled with labor supply challenges. Europe is facing a 'twin deficit' problem; a deficit of supply and demand and reliance on monetary tools alone is not going to solve the problem, according to an expert.

American LAO markets reacted positively to European markets and followed the trends followed in European markets. Americas has LAO value chain supply while Asia continues to have its demand. Prices recorded at FOB US Gulf were around USD 1000/MT, a 13% rise from the previous month. Moderate price rises were observed in Asian markets. The US continues to pump out significant amounts of oil to balance off the OPEC+ cut, and the US has significantly started procuring Natural gas for the coming Winter, pushing up global prices. The US produces ethylene via natural gas; thus, rising natural gas prices have forced the LAO producers to increase the prices. With LAO's rising prices, US products remain competitive over European and Asian counterparts due to the price differential of their raw materials. Multiple queries revealed that the Asian price rise is also supplanted by rising demand and the gradual economic recovery observed in China, forcing suppliers to stock up their supplies despite rising crude prices.

ChemAnalyst's internal studies forecast a further rise in LAO prices due to geopolitical tensions and rising inflationary pressure due to crude and gas price rises. While Europe will face muted demand in the coming months with bullish prices, the Americas and Asia are expected to follow a similar trend in the coming months despite weak recovery prospects forecasted by the IMF for the Americas and Asia in the last quarter of FY 23. Unemployment and other macroeconomic parameters are expected to deteriorate as trade volumes, lower investment flows, and elevated interest rates continue to persist in the global economy. Major economic recovery is expected from H2 2024, according to experts.