US ethylene set to reach 29-month high on tight supply

Focus story by John Dietrich

HOUSTON (ICIS)–US ethylene contracts for September are set to reach a 29-month high on tight supply, sources said on Wednesday.

US July ethylene contracts remain the ones most recently settled, at 49.5 cents/lb ($1,091/tonne).

Sources said they expect that August contracts will be settled up by either 1.75 cents/lb or 2.00 cents/lb as part of a two-month settlement with September.

September contracts are expected to settle higher by 2.5-3.0 cents/lb, putting the combined increase from July around 4.5-5.0 cents/lb.

This would put US September ethylene contracts at their highest since reaching 55.25 cents/lb in April 2012.

The increase in contract is being driven mostly by a surge in spot ethylene during September.

Front-month ethylene traded at record highs during the month, while the average spot ethylene price for September was around 71-72 cents/lb.

That is the highest level for spot ethylene since November 2005, when spot material was driven up by the lost production from Hurricane Katrina.

Supply and inventories in the US are tight because the market has averaged a loss of 10-12% in available production from March to October, sources said.

Sources said the US ethylene market has between 3-5 days’ worth of inventory.

“With another outage we could shoot right back up to 75 cents/lb,” a source said. “The market is still on a knife’s edge.”

The tight supply and high spot prices have pushed down demand, buyers said, especially for polymers production.

Buyers said they are running at their lowest rates possible to make contractual obligations, but have retreated from the spot polymers market because ethylene costs are too high.

At least two large downstream units have been shut down since August for economic reasons.

US ethylene contracts typically settle at the start of the month for the previous month.

Major US ethylene producers include Chevron Phillips, ExxonMobil, INEOS, LyondellBasell and Shell Chemical.

Major buyers include Axiall, Dow Chemical, Occidental Chemical and Total.

The following compares US spot ethylene prices with contract prices.