US January ethylene contracts set to fall on weaker spot prices

HOUSTON (ICIS)–US January ethylene contracts are expected to fall, sources said on Friday, as weaker spot prices outweighed an increase in production costs.

Sources said they expect January ethylene contracts to fall around 2.50-3.00 cents/lb ($55-66/tonne) from the December settlement of 38.25 cents/lb.

A fall within that range would put US ethylene contracts at their lowest since settling at 34.5 cents/lb in September 2009.

The drop is mostly fuelled by weaker average spot prices in January, which are set to fall around 7-8 cents/lb from December.

Spot prices in the US have been declining on an increase in supply and weaker demand for derivative exports.

Supply increased in January as several crackers restarted in the fourth quarter hit full rates and inventory control measures were eased at the start of the month once year-end taxes were assessed.

This allowed crackers to run stronger than in December, especially as ethylene inventories ended 2014 lower than normal because of unexpected production issues for most of the year.

With feedstock ethane, propane, butane and naphtha prices also falling, ethylene producers were able to build inventory from less expensive costs, keeping margins strong despite softer ethylene prices.

Ethylene demand in January remained soft, as low global energy prices made derivative products less competitive globally, and buyers retreated to the sidelines to wait for a clear floor to emerge before stocking up.

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

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

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

The following shows US ethylene contract prices through December.