OUTLOOK ’15: US ethylene poised again to fall if supply lengthens

HOUSTON (ICIS)–The US ethylene market is set to start 2015 with similar possibilities of sustained low prices expected in 2014, but similar challenges able to keep prices higher.

However, 2015 will start with contract prices more than 1 cent/lb ($22/tonne) lower year on year and spot prices 15-17 cents/lb lower.

Heading into 2015, market players said the year is poised for sustained spot ethylene prices below the 50 cent/lb level if supply holds steady, which should create a market closer to long than balanced.

Similar expectations hit the market in 2014, but a spate of unplanned cracker outages left the US with an average of 8-12% of capacity lost from March until November, sources said.

The unexpected losses pushed inventory levels lower than planned, which culminated with US spot prices reaching record highs in the 76-77 cent/lb level in the second half of September.

Although several cracker expansions that took place in 2014 should create some margin for lost ethylene production in 2015, cracker outages are expected to remain unpredictable.

With no new crackers planned until 2016 at the earliest, several long unplanned outages would be enough to push spot prices comfortably above the 50 cent/lb level.

Given current labour constraints in the US Gulf, unplanned outages and cracker start-ups could also face delays, preventing the market from being long on supply.

The current decline in spot prices at the end of the year, driven by global energy values plunging, is not expected to last the duration of 2015, with buyers getting more aggressive at the start of the year.

However, until global energy prices climb some, US ethylene demand is expected to stabilise or shrink slightly, as most derivatives will face intense competition from overseas producers, as the US cost advantage is minimised.

Even with spot prices comfortably below the 50 cent/lb level, margins for ethylene are expected to remain strong for all of 2015, even for contract material.

The high margins will keep most producers running at healthy levels throughout the year and will likely face little to no threat from overseas competition through derivative products.

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

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