AFPM ’15: Long, imbalanced supply driving US ethylene market

SAN ANTONIO, Texas (ICIS)–Alongside weaker global energy and commodity prices, continued long but imbalanced supply in the US ethylene market is expected to keep prices well below year-ago levels leading into the annual International Petrochemical Conference (IPC), hosted by the US American Fuel and Petrochemical Manufacturers (AFPM).

Year on year, the US February ethylene contract is down by 30%, while spot prices are down by around 33%.

Much of the decline has come as the global crude oil downturn has allowed overseas producers of ethylene derivatives such as polyethylene (PE) and polyvinyl chloride (PVC) to be more competitive with US producers, putting downward pressure on ethylene.

With the crude oil market still unclear, market players in the US ethylene sector have focused on the long supply, especially in Texas.

Sources said that with only two or three crackers down in Texas, supply has lengthened, even as inventory building is taking place to make up for the lost production of 2014.

Ethylene capacity is also slightly higher, as several expansion projects have been completed in the past year.

The length in Texas is being exacerbated by the ongoing shutdown of the US Evangeline Pipeline, which has prevented several Texas sellers from moving material to preferred downstream destinations, especially in Louisiana.

Heading into AFPM, sources said that the supply imbalance between the two regions has led to a premium of almost 25 cents/lb ($551/tonne) in Louisiana.

A similar situation was playing out a year ago – albeit without a plunge in global crude oil prices – and led to speculation that ethylene prices would continue to fall into the second quarter.

However, several unplanned cracker outages, as well as several planned outages taking longer than expected, tightened supply considerably and pushed spot ethylene prices to record highs in the third quarter.

Heading into this year’s AFPM, the possibility exists for something of a repeat, as labor availability in the US Gulf coast remains limited and construction continues on several new crackers.

A likely ceiling would be imposed by global commodity prices, however, as US derivative players said they continue to struggle to export PE and PVC, keeping their demand levels for ethylene limited to mostly contracted material.

Sponsored by the AFPM, the IPC takes place from 29-31 March in San Antonio.