Ethylene spot prices have maintained a spot sales average of 24¢ in August, the fourth straight month at that price as per purchasing.com. There may be a slight pickup to 26¢ in early September because of a recent slight uptick in feedstock ethane costs. However, natural gas prices: spot and futures, have dropped under US$3/million British thermal units this week due to industry oversupply,and that will reinforce future downward pressure on ethane prices as next month progresses. ICISpricing.com reports "firm buyer interest" in ethylene in recent days-mostly because polyethylene producers need feedstock to fill a surge in export orders. US-made polyethylene is underpriced in world markets because ethane-based feedstock here is cheaper than overseas, where feedstocks are more expensive naphtha and gas oils.
Second-quarter ethylene production was 12.75 billion lb, an 8% reduction from 13.83 billion a year earlier, the National Petrochemical & Refiners Association reports. So, ethylene inventories in the second quarter were at 950 million lb, up just 2% from 932 million lb a year earlier.
While there is little third-quarter buyer interest in ethylene at end-user plants and very low expectations of higher transaction prices, there has been some hedge purchasing by traders and distributors before the hurricane season intensifies. Still, hurricane-induced price surges shouldn't be as severe as in past years because demand for crude oil, other petroleum products and natural gas has slackened due to the economic downturn. Also, the National Oceanic and Atmospheric Administration has throttled back expectations for the 2009 Atlantic hurricane season to near- to below-normal 7 to 11 named storms, down from earlier forecasts of 9 to 14 named hurricanes. The season, which began June 1, is entering its historical peak period of August through October, when most storms form. Still, there have been few named hurricanes through this week-Anna, Bill and Claudette.
Looking into 2010, there's no dramatic inflation in any economist's ethylene forecast. The latest estimate of global growth in ethylene monomer capacity is at 17% in the 2009-2011 timeframe, or about 6% annually, while demand growth forecasts are at half that level. "As a result, we believe cyclical recovery, while real, could be more muted among commodity petrochemicals relative to prior cycles," says analyst Kevin McCarthy at Bank of America/Merrill Lynch Securities.