The biggest factors facing the US olefins market in 2014 are expected to be logistical issues moving material to desired locations and some supply tightness, sources say ahead of the 2014 American Fuel & Petrochemical Manufacturers’ (AFPM) International Petrochemical Conference (IPC) In San Antonio, Texas.
The continued mechanical issues with the Evangeline Pipeline have led to a wide spread between Texas and Louisiana ethylene, while propylene and butadiene (BD) continue to face pressure from lighter cracker feeds.
The September 2013 shutdown of the Evangeline Pipeline has continued into 2014, with estimates for its return ranging from March to April.
Propylene and butadiene continue to face pressure from lighter cracker feeds
Several ethylene market players say they expect the pipeline to be back around the time of the IPC, but that logistical issues could continue in the ethylene market.
“Prices will spike whenever people who need ethylene can’t get it from people who have it,” an industry source says. “Logistical issues will matter more than inventory levels.”
US ethylene inventories ended 2013 at 1.6bn lb, according to data from the AFPM, up from 1.2bn lb at the end of 2012.
The surge in inventories has pushed US spot ethylene prices from the high-50s cents/lb level at the start of 2014 down to the low-50s cents/lb level.
Some market sources say inventory levels have been drawn down and that the upcoming cracker turnaround season at the end of the first quarter and start of the second quarter will tighten the market and lead to higher ethylene prices.
However, other sources say the restart and expansion of the Williams cracker in June, as well as the completed expansion of Lyondell-Basell’s La Porte cracker in Texas, should ease ethylene prices in the second and third quarters.
“Inventory levels are going to take the edge off the turnaround season,” says Dan Lippe, managing partner of Petral Consulting. “We are more likely to see 38-40 cent/lb ethylene than 60 cent/lb ethylene.”
An ethylene buyer disagrees, arguing that ethylene producers are unlikely to allow prices to fall, largely because so many are integrated with polyethylene (PE) facilities.
“The guys who are integrated are the only ones who can really make money,” the buyer says. “Non-integrated ethylene buyers aren’t seeing much margin.”
RISING RAW MATERIAL COSTS
Although feedstock ethane and other natural gas liquids (NGL) prices have been at almost two-year highs for parts of 2014, sources said, US ethylene prices have resisted surging because of that.
The surge in ethane has also been somewhat balanced by an increase in propane, which has prevented longer propylene supply from hitting the market.
BUTADIENE DRIVEN HIGHER BY TIGHTNESS
US butadiene (BD) contract and spot prices have been rising since the end of 2013, tracking tight supply in the US and Europe.
US spot BD prices have climbed 20-25 cents/lb ($221-331/tonne) since the start of 2014. “It’s been all supply related,” a US BD buyer says. “There’s no demand reason for prices to come up this much.”
The European market, which is the primary exporter of BD and crude C4 feedstock to the US, has been tight because of several production issues at the end of 2013, as well as steady domestic demand.
US domestic supply has been limited despite high cracker operating rates in the fourth quarter of 2013 and first quarter of 2014, largely because of crackers focusing on lighter feeds.
US 2013 fourth-quarter BD inventories ended the year 46% lower from the fourth quarter of 2012, according to data from the American Fuel & Petrochemical Manufacturers (AFPM). Additionally, US 2013 BD production fell 3.2% year on year, according to the AFPM data.
The supply situation in the US has not been exacerbated by strong demand, as sources say BD demand in the US is steady at best.
Several automotive tyre makers in the styrene-butadiene rubber (SBR) market say 2014 could be a strong year for sales, as the typical replacement cycle is 4-6 years.
The tyre makers say that thanks to strong new car sales in 2010, some cars should be nearing the need for new tyres.
However, BD derivatives in the plastics markets, such as high-impact polystyrene (HIPS) and acrylonitrile-butadiene-styrene (ABS) copolymer are expected to grow at or slightly above US GDP growth levels, which are not expected to exceed 2-3%.
US BD buyers caution that if the recent increase in spot prices pushes contracts to levels only several cents/lb below spot, demand destruction would be likely in the US.
“Everyone expected the price to go up in 2014, so everyone bought ahead, but that just created demand,” a US propylene buyer says. “It was almost a self-fulfilling prophecy.”
Sources say PGP demand in 2014 has been steady to soft, as downstream polypropylene (PP) buyers have attempted to build up stocks and then retreat from the market to avoid expected PGP price surges in January and February.
However, prices have avoided a significant drop in March, unlike 2013, when buyers moved to the sidelines, which pushed PGP prices down.
Market sources say they are surprised that PGP has held on to its high prices in March, and that supply levels are not tight enough to justify prices at current levels.
“The market has been too quiet,” another propylene buyer adds. “People should have been moving material at the end of the month.”
The premium of PGP to refinery-grade propylene (RGP) has been largely steady in 2014 at around 8-10 cents/lb, with PGP often leading the way for RGP to increase.
RGP inventories have been steadily climbing in 2014, as demand for PGP has been steady at best and gasoline production has waned because of the cold weather in much of the country hindering driving.
The soft demand for RGP, as well as year-on-year increases in inventories, have kept a consistent downward push on spot prices, also slowing down gains for spot PGP.
US chemical-grade propylene (CGP) prices are expected to hold at a steady 1.5 cent/lb discount to PGP, as demand grows along with the US GDP growth rate.
Sources say CGP demand will be hoping for a robust late spring and summer construction season, as the cold weather that hit much of the US has put building activity behind forecasts from the start of the year.
PDH UNITS BRING NEW CAPACITIES
US propylene buyers continue to look forward to the start-up of several propane dehydrogenation (PDH) units, although none are scheduled to start up in 2014.
However, the US ethylene market is expected to gain around 500,000 tonnes/year of additional capacity by the start of the second half, which should push down on prices.
Additionally, ethane and other NGL prices are expected to start falling as warmer weather hits most of the US, although ongoing efforts to increase exports of NGLs could keep prices above lows seen for much of 2012-2013.
“It’s never going to be as cheap to make as it was in 2013,” a market source says about ethylene. “Inventory levels for the next three years will be higher than the past three years.”
While ethylene buyers remain sceptical that savings and increased margins will hit non-integrated buyers soon, US propylene sources expect continued volatility until the start-up of the future US PDH fleet.
Other buyers say the most likely outcome would be a wide arbitrage window opening for imported material, especially from Asia.