US ethylene prices under pressure as supply builds, costs low

HOUSTON (ICIS)–US ethylene prices are likely to be pressured as supply builds, with new capacity coming on line and turnaround season wrapping up while feedstock costs are falling.

Spot prices are likely to soften as length builds and logistics issues that prompted an early-summer price hike are resolved.

Supply is ample, but constraints have been ongoing since early summer.

“Ethylene inventories are high, but supply is not in the right place,” a source said.

Derivatives units in the Lake Charles, Louisiana, area have been running but associated crackers operated by Indorama and LACC have had issues achieving on-spec production.

Delays in new cracker startups coincided with ExxonMobil’s turnaround going into mid-June and BASF Total’s turnaround extending into late July.

“The timing kind of bit some people, but that’s the weeds and fundamentally we’ve had a lot more ethylene capacity coming on than derivative,” a source said. “It’s still an oversupplied market with cheap costs.”

The spot-price uptick may offset falling costs for July ethylene contracts, but downward pressure should return in August.

BASF Total has restarted, and Sasol is also starting its new cracker, which should pressure prices lower as logistics improve.

Indorama and LACC are working through their respective start-up issues, and Shintech is the next new cracker expected to start, followed by Formosa.

“It’s going to be tough for a while,” a source said regarding the coming months as supply builds. “We could see single-digit ethylene.”

Falling costs have stemmed from robust feedstock production in the Permian Basin of west Texas and eastern New Mexico, driving a wave of natural gas liquids to the Mont Belvieu and Sweeny hubs.

The rush of natural gas liquids (NGLs) is pushing storage capacity limits. New storage is not being added at the same pace, causing a bottleneck.

The issue is expected to become worse in the fourth quarter and into 2020 when new fractionation and pipeline capacity is added.

“If storage is constrained now, what will it look like next year?” a source said.

Feedstock supply length has pressured prices for ethane, propane and butane significantly lower. Ethane fell to 12 cents/gal last week – the lowest on record, according to ICIS data.

Ethylene is a key petrochemical feedstock, used to make polyethylene (PE), ethylene glycol (EG) and polyvinyl chloride (PVC) among other products.

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

Focus article by Amanda Hay

Image above shows polyethylene (PE) pellets, which are made from ethylene. Photo by Al Greenwood