US October ethylene contracts settle down 7.4% on feedstocks

Source: ICIS News

2018/11/02

HOUSTON (ICIS)--US October ethylene contracts settled for the majority of the market at a 2.5 cent/lb decline as costs for feedstock ethane eased.

The settlement puts October contract prices at 31.25 cents/lb ($689/tonne), down from 33.75 cents/lb in September. US ethylene contract prices are typically settled at the beginning of the prior month and take direction from production costs and spot prices.

September contract prices rose sharply on a spike in ethane feedstocks, which drove production costs and spot prices higher. Ethane prices was driven higher as stronger demand from new crackers and exports was met with the limited logistical systems in getting the ethane to market.

However, ethane prices weakened during October from the low 50s cents/gal to the mid 30s cents/gal amid an easing of demand and a downturn in the energy complex.

The arrival of colder weather also may have improved logistics for ethane in the US Gulf. Propane and butane, the other natural gas liquids (NGLs), could remain in other regions of the country to be used as fuel.

US ethane prices

Ethylene spot prices in October were in a similar range as September, despite the pressure from lower ethane costs.

Front-month ethylene traded at 17.75-22.25 cents/lb in October, compared with 17.00-23.00 cents/lb in September.

Average spot prices fell by less than 1 cent/lb, market sources said.

Ethane costs was the main driver for ethylene spot prices during much of the third quarter as ethylene oversupply kept cracker margins thin.

However, higher ethylene consumption and lower cracker operating rates have brought the ethylene market into a more balanced position.

This is bubble wrap made with polyethylene (PE), which is downstream of ethylene. (Photo source: Al Greenwood)

Downstream polyethylene (PE) also has expanded, with several new units started up in late 2017. Most were slow to ramp up, but ethylene consumption into PE has trended higher during the last two quarters.

Meanwhile, low ethylene prices and tight cracker margins have been headwinds for production. Two crackers remain offline for economic reasons. Another cracker was offline through much of September and in October for maintenance.

US ethylene inventories for the third quarter fell to their lowest level in more than a year.

US ethylene inventories

Looking ahead, it remains to be seen how long the market will remain somewhat balanced as several more crackers are scheduled to come online in late 2018 and early 2019, while most new downstream capacity is scheduled to come online later in 2019.

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