Ethylene and propylene prices have had an interesting start to the year – both markets have seen prices drop, but at very different rates.
Ethylene Price Decline in Q1 2020
The ethylene market began 2020 on the rise, slowly but steadily climbing from 16 cents per pound to 22 cents per pound in the first two weeks of the year. Exports from the newly opened Enterprise terminal took cargoes of 9,000 mt to 11,000 mt of ethylene out of the United States, and new ethylene production in Louisiana continued to be delayed. Ethane was 15 cents per gallon, an equivalent of 5 cents per pound.
Life was good for ethylene producers.
But then the slide began. The new plants began starting up or increasing operating rates. Export cargoes sat in the Houston Ship Channel due to a seemingly endless fog that backed up everyone’s departure schedules.
Spot ethylene offers at 22 cents became 20 cents and then 18 cents. By the first week of February, prompt ethylene was selling for 15 cents per pound.
And the hits kept coming. By the end of February, prompt ethylene was on sale for less than 14 cents and buyers were not interested – even at these prices.
Ethane held steady at 15 cents per gallon – or 5 cents per pound – so at least margins were not under water in February.
Is the story that simple? New production + export delays = price slide?
The story is never simple, not for ethylene.
Throw in the COVID-19 coronavirus and panic in oil markets that brought crude prices to lows not seen in decades and, well... the story is now complex and fast-changing.
Ethylene prices have fallen in line with energy, fuels and NGLs, and, as of March 25, were sitting at an all-time low of 10 cents.
Meanwhile, ethylene is only as strong as its weakest fundamental and with dozens of downstream chemicals making up the demand side, ethylene is impacted by a myriad of nuances in diverse markets.
And while ethylene itself has been exported, the volumes are a tiny part of the supply-side picture. Exports in ethylene’s chief downstream markets – polyethylene, PVC, vinyl acetates, ethylene glycol and ethylene oxide – are shipping out around the world in volumes that dwarf the feedstock. And when you depend on the rest of the world for your demand, the story gets more complex.
No one building a world-scale olefins plant in the past five years would have planned for the recent trade wars with China (and attendant tariffs), nor the coronavirus epidemic that had all but shut down Chinese manufacturing.
If it sounds somewhat grim, that’s because it is. No upside is predicted while the situation in China is playing out. A Feb. 21 IHS Markit report forecasted ethylene prices continued decline, citing “bearish Asian market sentiment and ample domestic supply.” IHS Markit is the parent company of OPIS.
One could say “somewhat grim,” though, because ethylene is still a profitable commodity to produce. Traders may be frustrated by a 2Q market that doesn’t show much volatility or opportunity for satisfying position plays, but the sureties of counting China out for the near term could be tempered by local market surprises, such as weather events or unexpected problems at plants or pipelines.
Propylene Price Decline in Q1 2020
Propylene has been a different story.
Spot polymer-grade propylene (PGP) prices dipped early in January from 31 cents per pound to 29 cents and then stayed in a tidy band of 29-30.25 cents until early March.
This tidy band got a bit messy following the declaration of the pandemic by the World Health Organization, which triggered steep drops in crude and NGLs (propane in particular) and dragged PGP down to 19 cents at this writing (March 25). Still more than twice the price of ethylene, but also down more than 30% over the course of 12 trading days.
Propylene derivative markets, such as polypropylene, propylene oxide and the phenolic resin streams, have certainly been affected by the situation in China, but the United States produces far less propylene than ethylene. U.S. Gulf Coast ethylene capacity is nearly 85 billion pounds per year; for PGP, this figure is closer to 35 billion. The effect of market length for propylene is inherently milder.
Like ethylene, however, margins were fairly good for producing PGP, with crude/refinery-grade propylene feedstock tumbling to just 9 cents per pound by March 25 and propane plummeting to about 25 cents per gallon (5.75 cents per pound equivalent).
While the 2020 stories for U.S. ethylene and propylene may not be so rosy for producers, they are not horror stories either. Additionally, buyers can rely on having access to the lowest priced olefins on earth, at least for the foreseeable future.OPIS PetroChem Wire Daily provides prices that reflect how the ethylene markets really trades. Learn more about this report and try it free.