US February ethylene contracts expected to settle slightly lower

HOUSTON (ICIS)–US February ethylene contracts were set to move down, sources said on Monday, as weaker spot prices outweighed increased production costs.

Sources pegged the February contract settlement to fall 0.5-1.0 cents/lb ($11-22/tonne), with most expecting the fall to be on the smaller side.

January ethylene contracts settled 35.25 cents/lb, their lowest since settling at 34.50 cents/lb in September 2009.

Buyers said that February ethylene spot prices fell around 2 cents/lb, as supply lengthened — especially in Texas — on several cracker restarts and the ongoing shutdown of the Evangeline Pipeline.

Although supply continued to lengthen, cheap feedstock options and low inventories kept producers from lowering operating rates to tighten the market.

Spot ethylene prices were also pushed lower by weak demand, as overseas derivative prices remained competitive with US product, leading ethylene buyers to lower operating rates to focus mostly on domestic contract obligations.

The fall in spot ethylene was almost matched by an increase in production costs, which sources said gained 1 cent/lb in February.

This was because of rising US energy markets, especially for heavier feeds such as naphtha, propane and butane.

Additionally, co-product credit gains for propylene were wiped out by losses for butadiene (BD), benzene and other aromatics.

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.