Rhine issues, softer demand leads to heightened talk of Europe cracker rate reductions

LONDON (ICIS)–European cracker operators are having to monitor and manage output more closely in order to mitigate burgeoning ethylene and propylene supplies and subsequently some trims in rates are widely assumed to be in place, sources said on Friday.

Reductions in operating rates due to a surplus of ethylene was always anticipated to some extent.

Ethylene, which is balanced to long structurally, has been under pressure from increased supply due to soft polyethylene (PE) demand.

Earlier this year, the surpluses were managed through exports but this currently is not really a viable alternative as Asian prices are low and freight rates firm meaning that European free on board (FOB) netbacks are very low and close to feedstock values.

Meanwhile, propylene supply has lengthened unexpectedly and considerably because of derivative issues and low water levels on the Rhine which has been hampering  inward and outward product flows.

Customers have pushed back on volumes and adjusted derivative plant operating rates.

The result is that the market has been very fragmented over the past couple of weeks but the challenges are ratcheting up as water levels have sunk further and the forecast is not at all optimistic for rain before the end of the month.

It is not as if output was not already restricted. Five planned cracker turnarounds are underway and restarts are expected around end-month at three of them.

There are a couple of unplanned issues affecting output, while Rhine levels had already led to some operating rate adjustments at crackers more directly affected in the region.

“If you don’t need to produce ethylene, and now you dont have [the pull from] propylene why wouldn’t you reduce cracker operating rates?,” a source said.

It is a tricky situation. Given the widely held view at the moment that the propylene length is temporary, some sellers are loathe to lose tonnes through cracker cuts that they think they may need once the Rhine recovers and normal trade flows resume – storage options are limited so not everyone has the flexibility to hold on to volumes.

While the extent to which each cracker may or may not have been trimmed is generally not disclosed, some evidence that reductions have been made is heard from the C4s/butadiene (BD) side, as some discussions over spot BD volumes this week were cut short due to potential changes in future availability.

“We are just monitoring things very very closely,” an olefins producer said.

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