US ethylene length to continue through 2018

HOUSTON (ICIS)–Length in the US ethylene market is likely to continue through the second half of 2018 as more crackers start up, but increasing costs for feedstocks may provide pricing support.

Ethylene production has outpaced ethylene consumption in the first half of 2018 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 since late 2017. The new crackers ramped up quickly, but several of the new PE plants have struggled to reach full operating rates.

The imbalance allowed ethylene supply to build and pushed down prices. Ethylene spot prices bottomed out at 12.0-12.5 cents/lb ($265-276/tonne) in mid-May, their lowest point since January 1999. Ethylene contract prices fell to 26.0 cents/lb in May, their lowest since 25.75 cents/lb in February 2016.

US ethylene spot, contract prices

Ethylene has rebound slightly, supported by higher feedstock ethane costs and a slightly more balanced market.

Consumption has improved as most of the recently built PE capacity is at-or-near full production rates. Production was curtailed by turnarounds and an idled cracker.

US June contract prices settled 0.5 cent/lb higher than May, and spot prices closed June at slightly above the mid-May 2018 low point.

However, market sentiment is softening again as participants anticipate the start-up of two more crackers.

ExxonMobil is building an ethane cracker with a capacity of 1.5m tonnes/year of ethylene at its Baytown site, Texas. (Photo courtesy of ExxonMobil)

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

An Indorama project, which expanded a previously idled cracker to 440,000 tonnes/year capacity, is expected to start up in July and reach full production rates in the third quarter.

With most of the new PE capacity already at-or-near full production rates, there is little room for increased consumption to fully absorb the incoming capacity.

As ethylene supply remains long, spot prices are expected to remain near production costs, and contract prices should track a combination of spot prices and production costs.

“Looks to me to be the case until some derivatives come up late ’18 or early ’19, or until enough crackers get dialled back to rebalance,” a market source said.

Scheduled to come online in late 2018 or early 2019 is about 3.6m tonnes/year of new downstream capacity in the PE, polyvinyl chloride (PVC) and  ethylene glycol (EG) chains.

But ethylene could remain long as four new crackers also are scheduled to come online in late 2018 and early 2019. The units have a combined capacity of 4.25m tonnes/year.

As increased supply from the new capacity keeps pressure on ethylene prices, the increased feedstock demand also is expected to push prices higher for upstream ethane. The price of ethane has nearly doubled over the last year, rising from around 17 cents/gal to about 34 cents/gal.

US ethane prices

The resulting tight margins for ethylene may result in a reduction in cracker operating rates or a move to heavier feedstocks, which produce less ethylene and more co-products like propylene and butadiene (BD).

“Everyone is now making run/don’t-run decisions based on variable production costs,” another market source said.

Major US ethylene producers include Chevron Phillips Chemical, DowDuPont, ExxonMobil, INEOS Olefins & Polymers, LyondellBasell and Shell Chemical.

Focus article by Jessie Waldheim