European cracker margins are currently “at top of cycle levels” according to INEOS last week. But as the above chart shows (based on APPE data), they remain supported by supply issues rather than demand. Operating rates actually slipped to 81% in H1, a figure more normally associated with a downturn.
Detailed output figures for Q2 tell the story (excluding 2009, when the industry was still in recovery mode):
• Ethylene output at 4992KT was the lowest since 2001
• Propylene output at 3714KT was the lowest since 2003
The only exception was butadiene, where soaring margins encouraged producers to maximise available extraction capacity. Output at 520KT was the highest since 2006′s 561KT.
Lower European refinery runs have been a great support to margins. German refiners, for example, ran at just 1.8mb/d in May. Until 2009, they were rarely below 2.2mb/day. Refiners had to cut rates, due to lack of gasoline export demand to the USA, and so cracker feedstock supply was also reduced.
Effectively, therefore, European operating rates have been in the mid-90% level, particularly when one includes the higher level of force majeures. These also provide strong support for margins, as consumers have to go into the market at short notice to obtain material
In addition, of course, the greater use of ethane feed in the USA and the Middle East has helped to keep propylene and butadiene tight. Prices for both products have been at record levels, providing further support for European producers.
The past 18 months have been a fabulous period to be a cracker operator. But the blog, like most of its friends in the industry, would have preferred the success to have been more due to strong European demand, rather than supply-side factors.