Europe ethylene supply rebalances on cracker reductions

18 November 2011 14:06  [Source: ICIS news]

LONDON (ICIS)--European ethylene supply is finally rebalancing in the wake of significant cracker operating rate reductions and this low-but-stable scenario is expected to persist for the remainder of the year, market sources said on Friday.

Ethylene is stable at the moment, we’re not seeing further decreases in December [demand], but there is still fear in the marketplace,” a major producer said.

“Our customers’ nomination forecasts are low, but they are not being revised down. The reductions on the crackers will be maintained for November and December,” another major producer added.

A third major producer said; “our view is that November is comparable to December, many have already de-stocked so there is not much further to go”.

Prolonged soft demand from key derivatives polyethylene (PE) and polyvinyl chloride (PVC) had been forcing cracker operators to reduce rates since September. Ongoing macroeconomic uncertainties together with the traditional working capital considerations for the year-end were also having a negative impact on demand.

European crackers are operating on average at around 70-75% of nameplate capacity, although some crackers are operating below 70% and some higher than 75%, depending on location and derivative portfolio.

“People have been adjusting production to demand,” a fourth producer said, adding; "[everyone] is keeping stocks under control and will make sure that continues.”

A few sources hold a more pessimistic view, especially in the PVC sector which has been hit by a double whammy of an economy-linked construction sector slow-down as well as a lack of competition on the export market.

“Demand has been decreasing since May and I am not convinced that we have seen the trough yet,” a PVC producer said.

With this in mind, the producer expected further pressure on operations and potentially another decline in cracker operating rates.

Further forward, a couple of ethylene producers are starting to caution over a potential tightening of supply developing in January if the anticipated restocking demand outpaced the cracker ramp-up process.

“[We] expect some relative improvement, but [we] don’t expect miracles,” the fourth producer said.

($1 = €0.74)

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By: Nel Weddle
+44 20 8652 3214



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