High naphtha prompts LPG cracking : ethylene prices likely to fall in Asia

Ethylene prices in Asia are likely to see a downturn in the near future despite crude-led bullish naphtha feedstock prices, as high naphtha costs drive producers to crack LPG, which gives a higher ethylene yield, as per Platts. Asian naphtha price breached US$1,000/mt for the first time in 30 months, while CFR Northeast Asia ethylene benchmark remained steady and settled at US$1350/mt, Platts data showed. Following the sharp spike in the Asian naphtha market, ethylene margins in Northeast Asia dropped to minus $0.38/mt Thursday, compared with US$14/mt Wednesday. Despite high naphtha prices and tight ethylene supplies, spot ethylene buyers remained "conservative" and continued to take a wait-and-see stance early Friday. A market source pointed out that buyers expect ethylene supplies to increase in the near future due to LPG cracking. In a bid to counter rising naphtha costs, Asian steam cracker operators have started considering using LPG as alternative feedstock. Taiwan's Formosa Petrochemical will switch 10% of its cracking feedstock to LPG from the end of this month. Formosa has three naphtha-fed steam crackers at Mailiao with a combined ethylene production capacity of 2.93 mln tpa. According to market sources, the ethylene production yield from cracking LPG is around 0.36-0.40, higher than 0.23 from cracking naphtha. The sources also said that steam cracker run cuts is not an option for Asian producers due to fat margins for other olefins, such as propylene. On Thursday, the FOB Korea propylene price increased US$20/mt and was assessed at US$1,501/mt. Considering a typical conversion cost of US$150/mt from naphtha, propylene margins were calculated at plus US$350/mt as of Thursday. In addition, the producers prefer to keep running at full capacity as they are seeking arbitrage opportunities to sell spot cargoes to Europe. According to a shipping report, a 10,000 mt spot ethylene cargo was reported to have been sold on an FOB Taiwan basis for March 15-20 loading with options to move to Europe. European ethylene price was assessed at US$1,525/mt CIF Northwest Europe Thursday, US$175/mt higher than NEA price.
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