US spot ethylene may enter uncommon volatility

HOUSTON (ICIS)–With the US August ethylene contract settled, it is clear that September will experience an oddity in the ethylene market: a contract price that exceeds the spot market.

Since the first quarter of 2011, spot ethylene prices have only dipped below that month’s eventual contract price for an extended period once, from the end of September 2011 to the start of 2012.

Some sources have said that a reliably lower-priced spot market relative to contract prices could spur trading in September.

“What you might see is customers taking their minimum offtakes or close to it and sourcing the rest of their needs on the spot market,” a source said.

August spot activity was described as well above normal, especially in the first three weeks as spot prices tumbled more than 10 cents/lb ($220/tonne).

Another market source said that some of the extra selling was a producer looking to keep its inventories low ahead of its ad valorum tax assessment at the end of its fiscal year.

Once spot prices started plummeting, it appeared likely that the August contract would settle higher than the monthly average spot price.

July ethylene contracts settled at 32.75 cents, while source said the average monthly spot price average was around 34.00-35.00 cents/lb.

The strong demand for spot throughout August, coupled with prices bottoming out in the third week, lead to a rebound in spot prices near the close of the month before they resumed their downtrend.

A market player said that a similar story could happen in September as buyers wait for low prices and then buy with material at a discount to expected contract levels.

Other market sources disagreed, saying that upward momentum could be limited by current market fundamentals and lower volatility.

A producer said that spot pricing is likely to hold somewhat low because cracker operating rates remain high and production should stay strong.

Several sources have said that the third and fourth quarter of 2015 appears to have a lighter turnaround season than normal, which should keep supply long.

The spot ethylene market also remains in contango, suggesting there is some optimism that prices will rebound in October or November.

Sources said the optimism is likely fuelled by expectations of a rebound in crude oil.

Focus article by John Dietrich