US spot ethylene hits six-month high on soaring feedstock

HOUSTON (ICIS)–US spot ethylene traded at 19.25 cents/lb ($424/tonne) on Thursday, as a spike in upstream ethane costs drove ethylene spot prices to a six-month high.

• Spot ethylene marks six-month high
• Spot price at highest point since cracker start-ups
• Ethylene spot price driven by climbing ethane costs

This plant makes ethylene. Photo by ExxonMobil

The front-month September ethylene trade on Thursday was up sharply from front-month August ethylene trades at 16.25 cents/lb in the previous week.

The increase was largely driven by a spike in prices for upstream ethane, which rose to 44.750 cents/gal from 40.625 cents/gal at the close of last week. Ethane is the most common cracker feedstock in the US.

The Thursday ethylene trade is the highest front-month trade since the first of two 1.5m tonne/year new crackers started up in 2018.

Still, ethylene spot prices are below levels at the end of 2017.

US ethylene spot prices

Chevron Phillips Chemical (CP Chem) announced the start-up of its 1.5m tonne/year new cracker on 12 March.

The following day, front-month ethylene traded at 17.75-19.00 cents/lb, down from 21.00-21.50 cents/lb in the prior week.

Since then, front-month ethylene spot prices have remained below 19 cents/lb as the new capacity had further lengthened an already long market.

In early 2018, ethylene production outpaced consumption.

Production was bolstered by the late 2017 start-up of Dow Chemical’s 1.5m tonne/year cracker, by the resolution of the final outages from Hurricane Harvey and by few production issues in early 2018.

Ethylene consumption was hampered by the slow ramp-up of new polyethylene (PE) units, which had started up in late 2017, and by production issues at several existing PE plants in early 2018.

Although ethylene consumption rates have improved as PE production rates increased during 2018, ethylene supply remains long.

The second new 1.5m tonne/year cracker of 2018, an ExxonMobil unit, started up in July. The new capacity more than offset some long-term outages, including the idling of a cracker in May and the extension of a turnaround in April.

The continued length has kept ethylene spot prices under pressure and narrowed cracker margins.

Ethylene spot margins for ethane feedstock fell below 10 cents/lb following the start-up of the Chevron Phillips Chemical cracker, down from an average of 15 cents/lb earlier in 2018. Since July, spot margins for ethane feedstocks have been below 3 cents/lb.

Ethylene spot margins for naphtha feedstocks have been negative through most of 2018.

These tight margins have led to production costs becoming the main driver for ethylene prices.

Production costs have been climbing as additional ethane demand, along with export demand and logistical issues, have pushed prices for the feedstock higher.

Heavier feedstocks also have been supported by crude oil values at $65-75/bbl during the past several months.

Costs for propane, the second most common US cracker feedstock, reached a six-month high by late August amid strong crude oil values and export demand.

US feedstock prices

Despite the additional production of high-value co-products such as propylene and butadiene (BD), heavier feedstocks have often not been cost effective amid such low ethylene prices.

The ethylene market is expected to remain long through 2018 and possibly into early 2019, as several more crackers are scheduled to start up in that time. On the consumption side, few downstream projects are expected to start up before 2019.

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

Focus article by Jessie Waldheim