The chart above is a flashing amber light for European cracker operators. Based on ICIS Pricing data, it shows the delta between (a) European and US ethylene contract prices (blue line), and (b) Europe and the North East Asian spot price (red line).
Usually, these deltas range between -$50/t and $100/t. H2 2008 was clearly exceptional, as Europe was still on a quarterly contract system whilst crude oil was collapsing from $147/bbl to $31/bbl. But since then, Europe's prices have generally been much higher.
This might not have mattered much in 2009-10, when lower refining runs, and OPEC quotas, limited olefin production in Europe and the Middle East. Equally, as LyondellBasell noted in November, force majeures meant the US didn't fully exploit its shale gas-based feedstock advantage.
Of course, ethylene itself hardly moves between regional markets, due to shipping and logistic costs. But its derivatives, such as polyethylene (PE), ethylene glycol (MEG) and PVC, can certainly move quite easily.
And today, export volumes seem to be increasing, as one would expect when the US and NE Asia enjoy near-record ethylene price advantages of $500/t and $400/t respectively versus Europe:
• ICIS' Nel Weddle has noted that 20% of US ethylene derivatives are now being exported, and up to 40% of PVC production
• Similarly, as ICIS' Linda Naylor reports, re-exports of PE from China are expected to arrive in Europe during Q2
Of course, Europe's producers have little room for manoeuvre. Crude oil and feedstock prices are also at record levels versus US natural gas. But if China is really slowing, and US producers are stepping up their exports, the rest of this year could become very difficult indeed.