Europe ethylene, propylene in cautious mode after H1 expectations disrupted by global woes

Source: ICIS News

2019/06/18

LONDON (ICIS)--European ethylene and propylene players will have been revising their original plans for the remainder of 2019 to show much more caution after the first half did not go according to expectations.

The 2019 turnaround slate, and in particular the coinciding outages at Europe’s two largest crackers this spring, led to extensive preparations including derivative outages and structural imports.

Many consumers also extended their contractual supply exposure.

The first half of 2019 was also littered by unplanned issues and, together, all of these supply constraints under normal market conditions would have led to heightened demand for volumes and, potentially, very high spot prices.

However, demand did not hold up to expectations.

LOWER DEMAND, MORE CAPACITIES  
The US-China trade dispute, slower economic growth in China, and other macro economic worries have led to uncertainty going forward and, subsequently, a lack of buyer confidence.

At this point, there is not a great deal of optimism that this uncertainty will wane, and there are concerns over how the supply and demand landscape will look when all the 2019 turnarounds are over.

That demand has slowed in 2019 is especially worrying as new monomer and polymer capacities are either on-stream, or soon due to be, in the US.

While players had anticipated some detrimental impact on Europe’s polymer markets as a result of US volumes usurping Europe’s in Asia, the fact that a large proportion of European supply would be offline this year was widely expected to insure against any major shocks.

Europe is now faced with the prospect of more US volumes coming direct to its shores.

Additionally, while the European market has been focused on supply constraints, elsewhere prices are soft and well below Europe’s.

The ready-availability of both ethylene and propylene volumes from outside of Europe has been another factor behind the better-than-expected balances in the markets.

On the flip side, this has impacted heavily on some of Europe’s derivatives, with high costs limiting export potential and creating issues with affordability.

JULY CONTRACTS TO SET DEMAND TONE
The July contract reference prices had yet to be established at the time of writing, but they are being viewed as an important settlement as demand opportunities over the summer months could be hinging on the settlements' outcome.

Feedstock prices have plummeted month on month but, for many, an improved price position relative to the rest of the world is key.

A trickier consideration is that, on paper, European production should be back to normal by the end of July, but this is of course not yet proven.

Aside from appropriate pricing, planned turnarounds in the autumn should help provide some support although sources remark that the outages will be less concentrated in just the one area.

This should minimise some of the logistical challenges seen in the first half of 2019, but a repeat of last year’s River Rhine low water levels, and potentially some hurricane-related disruptions to imports ex US, could also help offset low demand conditions.

Given players’ experiences over the first half, buyers are more relaxed over their options for the remainder of the year, but there is growing tension among sellers.

Global ethylene price evolution

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Global propylene price evolution


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Focus article by Nel Weddle

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