HOUSTON (ICIS)--US ethylene contract market participants have been unable to reach an agreement on an April settlement amid long supply, historically low spot prices and higher production costs.
March ethylene contracts had settled in early April at 28.25 cents/lb ($623/tonne). US ethylene contract prices typically settle at the start of the month for the prior month.
Negotiations for the April contract price will be revisited in early June, along with the negotiations for the May contract price in a double-month settlement, market sources said.
The last double-month settlement for US ethylene contracts was following Hurricane Harvey, when the August contract was delayed as the market faced disruptions from the hurricane. August contracts settled alongside September contracts the following month.
In April the market has faced long supply, falling spot prices and climbing feedstock costs. Ethylene production, bolstered by new capacity, has outpaced consumption amid a slower-than-expected ramp-up for new downstream polyethylene (PE) capacity.
Two new crackers, each with an ethylene capacity of 1.5m tonnes/year, have started up recently. The DowDuPont cracker in Freeport, Texas, started up in September and the Chevron Phillips Chemical (CP Chem) cracker at the Cedar Bayou complex in Baytown, Texas, started up in early March.
Both new crackers have been operating well.
"CP Chem started up its new cracker at Cedar Bayou, which is one of the largest and most energy efficient crackers in the world," Jeff Dietert, Phillips 66 vice president, investor relations, said during a Q1 earnings call on 27 April. "The cracker reached full design rates in April."
CP Chem is a joint venture between Phillips 66 and Chevron.
However, ethylene demand has been less than expected despite the start-up of about 3.5m tonnes/year of new PE capacity in late 2017. Several of the new PE plants have struggled to reach full operating rates due to logistics, certification or specification issues.
The imbalanced has lengthened the ethylene market.
Spot prices have been on a downward trajectory since early 2018 with steep declines since the March start-up of the CP Chem cracker. Front-month spot trades fell to a 19-year low of 13 cents/lb on 26 April.
In April, front-month spot trades were 13.0-17.5 cents/lb, compared with 16.0-22.0 cents/lb in March.
Average spot prices in April were lower by about 4 cents/lb from March, market sources said.
While falling spot prices have kept pressure on the contract market, rising feedstock costs are countering that influence.
US ethane, propane
Ethane prices have risen since the March start-up of the CP Chem cracker, increasing by about 4 cents/gal since early March. Ethane prices in April were an average of about 2 cents/gal higher than in March, according to ICIS assessments.
Prices of propane rose sharply in April, tracking higher upstream crude oil values and rising demand. Propane is the second most common cracker feedstock in the US.
Average production costs in April were higher by about 1 cent/lb from March, market sources said.
Major US ethylene producers include ExxonMobil, INEOS, LyondellBasell and Shell Chemical.
Major US buyers include Occidental Chemical and Westlake Chemical.
Focus article by Jessie Waldheim
Interactive by Tracy Dang