Asian C2 Muddle Reflects Wider Uncertainty

By John Richardson

ASIAN ethylene markets appear to be in a muddle over the Middle East supply picture.

Click here for a graph of the latest pricing – EhylenePrices1March2011.ppt 

A shipping industry source we spoke to recently insisted that more rather than less C2s were being exported from the region as opposed to the reduced volumes being claimed by Japanese traders.

One reason being put forward for the lack of clarity is how Iranian volumes are being reported, given sensitivities around compliance with sanctions.

The upcoming Asian cracker turnaround season and production problems at the YNNC No 1 cracker in South Korea, reported by my colleagues at ICIS news, lend support to the tight-market argument.

But it is fathoming the Middle East situation that remains crucial as the region is the swing producer for ethylene. Iranian volumes are the most volatile on a month-by-month basis.

The 300,000 tonne/year Ras Lanuf cracker in Libya was thought to have been down earlier this month due to the unrest. About half of the C2s are exported to destinations such as Italy, Turkey, Algeria and North Africa with propylene and butadiene shipped out of the complex, we understand

But even if Ras Lanuff were still down at the moment this wouldn’t amount to much more than a tiny hill of beans in the overall picture.

“I really don’t know for certain if there is less ethylene coming out of the Middle East but I suspect so,” an industry source told us last week, reflecting the extent of the uncertainty.

“I don’t think the Iranians are exporting as much, although how this is being exported might be obscured for sanctions reasons.

“What I do know is that the Saudis were approaching their contract customers in December to try and get back into old contracts that had been brought to a halt by the shortage of feedstock. In January and February, the Saudis don’t appear to have had the extra export volumes that they expected.”

This might be the result of less associated gas being available than had been expected, we both speculated.

The question now, following the apparent decision by Saudi Arabia to raise crude-oil production, is whether this will lead to more associated gas being supplied to petrochemicals. We then need to fathom whether this will work its was into more C2s or derivatives exports.

A further factor behind the tight-market view is unconfirmed reports of recent production problems at a major Saudi complex resulting from a flash flood and a power failure.

“I think ethylene will definitely stay tight for the rest of H1 but the second half is anyone’s guess,” our industry source added.

The blog feels that ethylene might have been talked-up a little last month in an effort to compensate for the flat polyethylene (PE) markets we referred to yesterday.

Right now, though, the uncertainty could well be a symptom of a wider lack of clarity there as fear and caution start to eat into confidence. The obvious catalyst for this is the Middle East.

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