US Aug ethylene expected to fall on long supply

HOUSTON (ICIS)–US August ethylene contracts are expected to fall, sources said Tuesday, and could hit their lowest since July 2009.

That was the previous time contracts fell below the 30.00 cent/lb ($661/tonne) level, when they were done at 29.75 cents/lb.

July contracts settled at 32.75 cents/lb, and sources said they are expecting a fall of 2.5-3.0 cents/lb for August.

The decline is mostly being fueled by a 7 cent/lb drop in the average spot price between August and July.

US August ethylene spot prices fell hard on a combination of aggressive selling by some and continued long supply.

Sources said at least one US ethylene producer was looking to draw down inventories in August to avoid ad valorum taxes at the end of the year on excess inventory.

This helped push spot prices down significantly in the first half of the month and kept some pressure on in the second half as well.

Supply also strengthened at the start of the month as LyondellBasell completed half of its expansion at its Channelview facility in Texas, and completed the month by finishing the expansion.

Sources said that US cracker operating rates were also in the mid- to high-90s%, further boosting supply.

While this drove down spot prices, margins remained attractive, owing to feedstock costs near their lowest, particularly for propane and butane.

The low feedstock costs stemmed from falling global oil and energy values and oversupply in the US of propane and butane.

Some estimates put cash costs for ethylene production from propane and butane at 4-6 cents/lb, while costs from ethane usage were heard around 8-9 cents/lb.

With spot ethylene prices falling as low as 22 cents/lb in August, this left margins around 14-18 cents/lb, which sources said is still very attractive to sellers.

Despite the cheap feedstocks, co-product credit values for propylene, butadiene (BD) and aromatics all fell throughout August, leading to overall cracker cash costs holding steady or rising slightly in August, sources said.

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

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

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