Lifted mainly by tight supply resulting from a series of cracker outages in 2010, US olefins prices were on a sharp uptrend, as per ICIS. After demand collapsed during the worst economic crisis of 2008, olefins are moving at full speed in 2010, delivering the kind of return that seemed unimaginable after demand collapsed at the end of 2008. Trading at US$1477/ton in late March, spot ethylene for prompt delivery had nearly tripled from a year ago levels amid larger jumps for propylene and butadiene (BD) in the same period. Spot BD rose to 100 cents/lb from 20 cents/lb in the last 12 months, while polymer-grade propylene (PGP) prices jumped to 79 cents/lb from 24 cents/lb in 2009.
Market participants have cited steady demand as one factor behind the surge, but the harsh freezing weather after the New Year briefly disrupted operations in at least 12 crackers in Texas and Louisiana. While most units resumed operations by mid-month, lost production in that period - combined with planned and unplanned shutdowns in the ensuing months - has provided support for higher spot prices while giving producers the upper hand in contract negotiations so far in 2010. Ethylene and propylene are trading almost at the same level they did when crude oil hit a record high of $147/bbl in mid-July 2008. In all likelihood, US buyers will have to face at least another month of price increases. Market participants are predicting higher ethylene contract prices for March, amid hikes of 6-8 cents/lb for propylene and 10 cents/lb for BD in April.
Beyond April, trends seem to point to sustained firmness in propylene and BD, from the continued use of light feedstocks by US crackers, but a softening in ethylene due to competition from Asia and the Middle East in the resin and derivatives export market.