US July ethylene contracts settle up amid cracker issues, recovering demand

Author: Michael Sims

2020/08/05

HOUSTON (ICIS)--US July ethylene contracts for the majority of market participants settled at an increase of 1.0 cents/lb, on higher spot prices and cash costs, as cracker issues curbed supply, and demand continued to recover.

The settlement marks the third consecutive increase, following the trough reached in April, amid crashing oil prices and coronavirus-stricken demand.

The settlement puts July contracts at 25.5 cents/lb ($562/tonne), up from 24.5 cents/lb in June.

Ethylene contract prices are the highest they've been since January, when they settled at 25.75 cents/lb.

Average spot prices increased by about 2.5 cents/lb, amid higher cash costs and recovering demand.

Front-month ethylene traded in July at 14.75-16.00 cents/lb, up from 11.75-13.50 cents/lb in June.

Healthy arbitrage to Asia, driven by the cost advantage belonging to the US - as well as Asia's recovery from the coronavirus demand shock - has allowed exports to emerge as one of the bright spots in the US ethylene demand picture. US ethylene exports from January through May rose 35% from the same period in the prior year, according to ICIS Supply and Demand data.

Demand for ethylene's largest derivative, polyethylene (PE), proved surprisingly buoyant through the coronavirus crisis, largely driven by its heavy usage in consumer non-durable applications such as food packaging.

Cracker issues affecting supply during July included BASF Total's facility in Port Arthur, Texas, INEOS's facility in Chocolate Bayou, Texas, Formosa Plastics Corp USA's facility in Point Comfort, Texas, and Dow's facility in Freeport, Texas, among others.

Feedstocks ethane, propane and butane prices inched up with the broader energy complex during July.

July contracts for co-products propylene and benzene rose. Butadiene (BD) remains weak, but slowly is improving.

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

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