In Asia, spot ethylene prices have risen by ten dollar in the past week to US$1365/ton CFR Northeast Asia, as per Chemorbis. Since the beginning of the month, spot ethylene prices have risen by US$210/ton, with most of the increase occurring in the earlier part of the month. Early January also saw the rise in spot ethylene prices accompanied by strong upward trend in related markets, including crude oil, naphtha and PE. Interestingly, as crude oil dips and PE markets weaken, ethylene market retains its bullishness in the second half of the month. This has brought ethylene prices far above the levels necessary to cover ethylene producers’ naphtha feedstock costs as well at levels sufficiently high to put PE producers under severe margin pressure.
Crude oil futures on the Nymex began the month at US$81.51/barrel and climbed as high as $83.18/barrel, and have been falling since January 13, to US$73.67/barrel on January 27. Spot naphtha prices began the month at around US$730/ton CFR Japan, reached as high as $770/ton and have currently plunged have currently sunk to US$691/ton CFR Japan. Considering current spot quotes for naphtha at US$691/ton and ethylene at US$1365/ton, the naphtha-ethylene spread currently stands at US$674/ton, suggesting that integrated PE producers could gain substantial margins by halting their PE production and selling ethylene instead. A key South Korean producer reported that it has no spot PE cargoes to offer to the market this week as they prefer to sell ethylene instead. As per Chemorbis Price Index, spot PE prices to China currently stand at US$1460-1650/ton for LDPE film, US$1270-1430/ton for HDPE film and at US$1350-1520/ton for LLDPE film, all on a CFR China, cash basis. With ethylene prices standing at US$1365/ton, this would suggest that PE producers would need to achieve prices of US$1515/ton in order to cover their costs, a feat possible only for sellers offering LLDPE or LDPE film at the higher end of the offer ranges for these products.
Despite this, spot ethylene prices remain at their current high levels, largely because of extremely tight supplies in Asia. At the beginning of the month, players were worried about a series of plant outages in the Middle East, one of Asia’s main suppliers of spot ethylene. Difficulties securing feedstock from the Middle East have grown still more severe this week, with two crackers with combined ethylene capacity of 2.3 mln tpa shutting down in Iran as a result of problems securing adequate ethane and electricity supplies. This new outage comes on top of an existing outage at another 1.3 mln tpa cracker in Saudi Arabia, which has been offline for a month. Over the past two weeks, some traders in Asia have managed to secure deep-sea ethylene supplies from the US and Mexico, although the surging spot ethylene prices in the US have put the possibility of further arbitrage in doubt. Spot ethylene prices inside the US have spiked more than US$250/ton on the month to bring current ethylene quotes to around US$1085-1090/ton FD USG.