Spot, costs push up US June ethylene contracts after four-month drop

HOUSTON (ICIS)–US ethylene contracts for June settled higher for the first time since January, pushed up by increased production costs and spot prices.

June contract prices settled at 26.5 cents/lb ($584/tonne), up by 0.5 cent/lb from the prior month, but at least one participant did not accept the settlement.

The settlement follows four months of declines as ample supply from new crackers has kept pressure on both contract and spot prices. Contract prices had fallen to a two-year low in May before the June increase.

Ethylene production growth has outpaced ethylene consumption growth amid the start-up of new crackers and new derivative units. About 3m tonnes/year of new ethylene capacity and about 3.5m tonnes/year of new PE capacity have started up. The new crackers have been running well, but several of the new PE plants have struggled to reach full operating rates.

Ethylene spot prices bottomed out at 12.0-12.5 cents/lb in mid-May, their lowest point since January 1999. Spot prices rebound slightly in late May and early June on better consumption and lower production.

On the demand side, most of the new downstream units were at-or-near full operating rates. On the production side, a cracker was idled amid the slump in ethylene prices.

Front-month spot ethylene traded in June at 12.375-15.750 cents/lb, compared with 12.000-15.250 cents/lb in May.

Average spot prices rose by about 0.7 cent/lb month on month.

Ethylene contract prices also were pressured by an increase in production costs. The increase was driven largely by a spike in prices for ethane, the most common cracker feedstock in the US.

Ethane prices rose to a four-year high in early June and continued climbing into the mid-30s cents/gal by the end of the month. Higher export levels, increased demand from crackers and a pipeline outage had pushed prices for the feedstock higher.

Average production costs rose by about 0.2 cent/lb month on month.

Heading into July, ethylene prices remain under pressure from lengthy supply as two more crackers are expected to start up in the coming weeks.

ExxonMobil’s new 1.5m cracker in Baytown, Texas is in commissioning and expected to begin production this summer.

Also upcoming is an Indorama project, which revamped a previously idled cracker in Lake Charles, Louisiana. The 440,000 tonne/year cracker is scheduled to start up in July and reach full production rates in the third quarter.

However, this may be offset as increased ethane demand from the new crackers could keep feedstock costs high.

US ethylene contract prices typically settle at the start of the month for the prior month and typically follow direction from spot prices and production costs.

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