US ethylene margins rise 15.7% on reduced feedstock costs

16 May 2011 22:06  [Source: ICIS news]

HOUSTON (ICIS)--US ethylene margins rose by 15.7% in the second week of May on reduced production costs and higher ethylene spot prices, the ICIS margin report showed on Monday.

Ethylene margins were at 36.68 cents/lb ($809/tonne, €574/tonne), up from 31.70 cents/lb in the week ended 6 May, using ethane as a feedstock.

The increase followed lower ethane feedstock prices and continued gains in spot ethylene.

Ethylene for May traded at 67.00-70.50 cents/lb in the week ended 13 May, up from 64.75-66.75 cents/lb a week earlier, on concerns that expected flooding of the Mississippi would affect operations at crackers near the river.

On the feedstock side, Mont Belvieu remained on a downtrend last week, ending Friday at 77.00 cents/gal, down by 6% from 82.00 cents/gal a week earlier.

Ethane accounts for around 60% of the feedstock volumes used to make ethylene, according to an industry survey.

The drop in ethane prices last week, which followed a 4.6% reduction in the previous week, reflected lower energy prices but also weaker demand for the product as a petrochemical feedstock.

The softening in ethane consumption comes as naphtha prices have dropped, while record-high propylene and butadiene (BD) prices are likely luring more crackers towards heavier feedstocks.

US ethylene margins were at 50.40 cents/lb last week, using naphtha as a feedstock, up from 49.29 cents/lb in the previous week.

The 2% increase reflected lower costs and higher ethylene prices, which outweighed a 3.6% fall in co-product credits last week, the report said.

Despite leading ethane by a wide margin, the cost advantage of naphtha is likely to be short lived, an investment bank predicted, adding that ethane prices will drop and the product will retake the lead as the most competitive ethylene feedstock.

The increasing incentive to shift from ethane to other feedstocks, combined with upcoming cracker turnarounds, will cut ethane demand and reduce the price of the feedstock, Deutsche Bank said in a research note to its clients.

"This should result in the ethane's advantage over naphtha to return over the next several weeks," the bank added.

Ethane prices were assessed at 76.500-77.375 cents/gal on Monday.

The ethylene spot market was quiet and no fresh deals were heard. Ethylene bid/offers for May were wide apart at 67.00-72.00 cents/lb.

($1 = €0.71)

For more on ethylene visit ICIS chemical intelligence

By: William Lemos
+1 713 525 2653

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