30 December 2013 15:00 [Source: ICIS news]
HOUSTON (ICIS)--Continuing battles for margin between US ethylene producers and derivatives producers and additional capacity expected to hit the market will be the biggest drivers in the US ethylene market for 2014.
“Right now, they have 30-40 cents/lb of margin and we have 10-12 cents/lb at best,” an ethylene buyer said. “There’s no reason for it.”
The battle for margins is leading US ethylene contract players to move to a more freely negotiated settlement process, rather than a formula-based one.
“The old formula was useful when ethane was 80 cents/gal,” a market source said. “Now that it’s so much cheaper it doesn’t make sense to move those margins downstream.”
Buyers disagreed, saying that a more equitable distribution of margins would allow them to compete better in overseas markets.
The new contract direction is also expected to keep US spot and contract ethylene prices closer in tandem.
“We look at the benzene market and wish it were more like that,” the market player said. “The spot market tells you where the market is and the contract joins it.”
US spot ethylene prices are expected to face downward pressure during the year, as several billion pounds per year are expected to be added to the market.
The increased supply should lead to longer supply and lower prices, but some market sources are sceptical.
“The market is moving up, it seems, regardless of what we do,” another ethylene buyer said. “Unless the world or crude oil forces us to change our pricing, what’s going to change our pricing?”
Sources said that with overseas derivatives largely unable to compete in the US market because of their feedstock disadvantage, US ethylene producers are safe from declining demand.
The only major demand declines that could hit the US would be tied to weaker economic conditions, but most sources expected the US GDP to increase slightly from 2013.
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