HOUSTON (ICIS)--US ethylene margins have recovered to February levels following a March-May plunge caused by rising feedstock costs and muted demand.
Margins have more than tripled since mid-May, after dropping 73% during the preceding three months.
US ethane steam cracking margins
Source: ICIS Margin Analytics
Ethylene margins faced compression in the first half of the year as a wave of new cracking capacity and delayed derivative start-ups stranded supply.
The onset of the coronavirus crisis in the US amplified the supply-demand imbalance as certain derivatives had demand curbed by containment efforts.
On the cost side, feedstock natural gas liquids (NGLs) prices rose due to concerns about reduced oil and gas production trimming NGL production.
The result of these factors has been a rapid narrowing, followed by widening, of the US ethane-ethylene price spread.
NGL prices have recovered faster than crude, which has been attributed to speculation among market participants that less oil and gas production would tighten NGL supply.
NGL production data has not supported these concerns, and the growth rate of ethane prices has slowed accordingly.
The US chemical industry relies predominantly on NGLs including ethane, propane and butane as feedstock.
Driving the margins recovery on the demand side, the market for ethylene and its derivatives has been unexpectedly buoyant.
Partially as a result, ethylene spot prices have risen 65% since mid-May.
The outlook for US ethylene margins ultimately will depend on market confidence in feedstock supply and on the world's success at containing the ongoing pandemic.
The largest unknown variable will remain the coronavirus, for which a successful vaccine could be years away, according to ICIS senior analyst John Richardson.
However, both NGL supply and demand for ethylene-derived products should be plentiful in the short-to-medium run, with higher crude boosting confidence at the wellhead and a wave of derivative plant start-ups coming later this year.
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 Chemical, ExxonMobil, INEOS Olefins & Polymers, LyondellBasell and Shell Chemical.
Focus article by Michael Sims
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