Asian ethylene, propylene spot prices could slide further after dropping to multi-month lows

Ethylene and propylene spot prices in Asia have dropped to a level not seen since January 2010. Spot prices are expected to slide further amid lacklustre sentiments in key derivatives market and nose-diving feedstock naphtha values, as per ICIS. Last week, ethylene spot prices fell by US$160-170/ton to five-month lows of US$1100-1140/ton CFR, and propylene dropped by about US$90-110/ton to US$1150-1230/ton CFR NE Asia. Weekly variable margins for naphtha cracker operators in NE Asia on May 21 remained at US$519/ton, partly due to a US$98/ton week-on-week decline in naphtha prices to US$645/ton CFR Japan, prompting many to opine that a sharp correction in margins may be overdue. These margins are considered healthy as they stand more than double the typical break-even spread of US$250/ton. The robust margins have kept run rates at majority of crackers in Asia at 90-100% in the first half of 2010. At the beginning of last week, ethylene and propylene sellers’ offers progressively dipped lower in a bid to attract interest, but buyers preferred to wait in the sidelines due to uncertainty over market outlook on news of credit tightening measures in China and worries about concerns caused by Europe’s debt crisis. Lackluster demand could continue to exert pressure on olefins values, despite tight supply amid ongoing cracker turnarounds in the region. Few regional cracker operators are mulling cuts in derivative polymer production due to prevailing poor economics.
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