US April, May ethylene contracts settle at two-year lows amid long supply

04 June 2018 23:55 Source:ICIS News

HOUSTON (ICIS)--US April and May ethylene contracts settled on Monday for a majority of participants at a decrease of 1.5 cents/lb and 0.75 cent/lb, respectively, amid long supply and historically low spot prices, sinking to their lowest levels in over two years.

Photo by Mode/REX/Shutterstock

The double-month settlement puts April ethylene contracts at 26.75 cents/lb ($590/tonne) and May at 26.00 cents/lb. At least one participant did not accept the April and May settlements.

March ethylene contracts had settled at 28.25 cents/lb.

Ethylene contract prices are at their lowest point since 25.75 cents/lb in February 2016, when values had softened due to record lows for feedstock ethane and sluggish demand.

The May and April contract prices had tracked lower spot prices, but increases for feedstock ethane had limited the decline in April, and a rebound for spot prices had limited the decline in May.

Spot prices had been falling since early 2018 as production from new capacity had outpaced an increase in consumption from new downstream polyethylene (PE) capacity.

The decline bottomed out at 12.00-12.50 cents/lb in the week ended 11 May, with ethylene spot prices at their lowest point since January 1999.

In the second half of May, spot prices rebound slightly following the idling of a cracker and improved operating rates for downstream PE.

In mid-May Chevron Phillips Chemical (CP Chem) idled the No 22 ethylene unit at its Sweeny complex in Old Ocean, Texas. Market sources had attributed the move to the slump in ethylene spot prices.

Meanwhile, PE production rates in March and April had risen significantly from levels seen earlier in 2018, according to data from the American Chemistry Council. Despite some new PE plants still not running at full rates, market sources expect PE production in May has remained strong.

While the market has become more balanced by late May, it may again be under pressure with the start-up of more capacity.

The new 1.5m tonne/year ExxonMobil cracker is expected to start up mid-2018, and market sources have said it could start up in mid-June.

Several more crackers are expected to start up before the end of the year. About 7m tonnes/year of ethylene capacity is expected to come online in 2018, which includes the CP Chem 1.5m tonnes/year cracker which started up in early March at the Cedar Bayou complex in Baytown, Texas.

Some market sources expect the new capacity could keep length in the ethylene market through the end of the year. However, others expect ethylene could become more balanced late this year once new PE capacity is built out and reaches full operating rates.

Another 1.3m tonnes/year of PE capacity is expected to come online in the second half of this year. About 3.5m tonnes/year of PE capacity came online during 2017, and some of those plants still have room to increase operating rates.

US ethylene contract prices typically settle at the start of the month for the prior month and follow direction from spot prices and production costs.

The market had been unable to reach a settlement for April contracts, and negotiations were revisited along with talks for May.

Ethylene contracts last had a double-month settlement following Hurricane Harvey, when the August contract was delayed amid disruptions from the hurricane. August contracts settled alongside September contracts the following month.

Major US ethylene producers include ExxonMobil, INEOS, LyondellBasell and Shell Chemical.

Major US buyers include Occidental Chemical and Westlake Chemical.

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Focus article by Jessie Waldheim

By Jessie Waldheim