NE Asia ethylene weakens amid bearish downstream markets

05 May 2017 11:56 Source:ICIS News

Focus article by Yeow Pei Lin

SINGAPORE (ICIS)--Spot ethylene prices in northeast Asia fell for a second week on the back of weak downstream margin.

A deal was done late in the week for a 3,000- to 3,500-tonne June-arrival shipment at $1,175-1,180/tonne, down from the assessed range of $1,180-1,210/tonne CFR (cost and freight) NE (northeast) Asia in the previous week ended 28 April.

The weaker market is a reflection of the bearish downstream conditions in China.

Prices for products such as styrene monomer (SM) declined further during the week and margins are largely negative for non-integrated plants across a wide range of industries, such as vinyl chloride monomer (VCM) and monoethylene glycol (MEG), based on the previous week’s spot ethylene prices of around $1,200/tonne CFR NE Asia.

This is starting to affect derivative activity in China, with some end-users putting in place production cutbacks.

For instance, key ethylene importer SP Chemicals is lowering operations at its two VCM plants towards an average rate of around 70% this week, from 90% two weeks ago and it has also made plans to scale back its SM production in June to 70% from 100% currently. The Jiangsu-based company has VCM capacity totalling 500,000 tonnes/year and a 320,000 tonne/year SM plant.

Spot ethylene discussions in the current week initially revolved around non-Asian supplies, as participants in Japan and South Korea were on extended holidays.

A collapse in crude oil prices late in the week drew a few regional sellers from the sidelines. The sellers wanted to offload some June quantities on fears that the falling crude futures could worsen the already weak downstream markets.

But many buyers have retreated to the sidelines on Friday.

“We want to wait and see. Prices should have more room to fall in the coming weeks,” an end-user in China said.

However, some sellers remain cautiously optimistic, citing supply constraints from several cracker turnarounds in the second quarter and on expectations that import demand in China could remain supported by an extended shutdown at a methanol-based olefin plant.

“The FOB [free on board] costs of regional costs are still high. We are not in a position to lower prices much,” a trader said.

Meanwhile, two Iranian producers sold to Asia a total of 14,000 tonnes of ethylene for early-to-mid May loading between late last week and this week.

The shipments are likely bound for China, although there is a possibility that part of the supply may have to be diverted to other markets because the major Chinese buyers said their banks are no longer willing to facilitate payment for Iran-origin cargoes.

Asia ethylene 5 May

By Yeow Pei Lin