Major changes underway in relative olefin pricing

C2 v C3 C4 Jun10.pngUnprecedented changes are taking place in the relative prices of the main ‘building block’ petrochemicals. In turn, these could have major implications for downstream users, all along the key value chains.

Today’s post looks at the changes taking place in ethylene’s relative price to the other olefins, propylene and butadiene. On Monday, the blog will look in more detail at ethylene pricing versus propylene. On Tuesday, it will look at benzene, and at paraxylene on Wednesday.

3 months ago, the blog highlighted that for the first time ever (as the chart above shows), ethylene prices (blue line) had dipped below propylene (red) and butadiene (green). This is due to a number of different factors:

• Ethane-based crackers are now coming online in the Middle East. This, together with the shift to lighter feeds in the USA and Europe, is reducing operating rates for liquids-based crackers. These, of course, are major sources of propylene, butadiene and benzene. And so the volume of these ‘co-products’ is reducing.
• Separately, declining gasoline demand in Europe and the USA, caused by the shift to diesel in Europe, and the higher use of ethanol in the USA, is reducing refinery operating rates. Refinery volumes are an order of magnitude larger than chemical volumes. And so in turn, this is also reducing propylene, benzene and paraxylene production.

This combination has created a counter-intuitive result. During a downturn, one would normally expect petchem supply/demand balances to weaken. This is happening to ethylene, although it is being mitigated by lower liquids-feed availability from refineries.

But for propylene, butadiene and benzene (and paraxylene to some extent), supply has reduced ahead of demand. The most extreme example is butadiene, where markets have become extremely tight, in spite of the downturn in the key demand area of autos, due to its lack of alternative production routes.

Our forecast, as originally set out in our 2008 Feedstocks for Profit Study, is that butadiene will see an extended period of tightness. It suggested that a Global Downturn scenario would lead to a tight supply position as Europe’s steam crackers “will turn down relatively harder than auto production, due to Middle East production taking a relatively higher share of C2 demand, and thus reducing the supply of butadiene“.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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