Asian PE-ethylene margins to turn positive by July as steam crackers return from shutdowns

06-May-15

Asian polyethylene-ethylene margins are expected to return to positive territory by July at the earliest, as feedstock ethylene prices should ease off from current highs once steam crackers fully return from planned and unplanned outages, as per industry sources in Platts. PE on the other hand, is expected to remain largely steady amid seasonally bearish demand in June and similarly low supply from Mideast producers, sources added. Soaring ethylene prices on the back of tight supplies have pushed PE-ethylene margins into negative territory last month. The spread between benchmark CFR Far East Asia HDPE film and CFR Northeast Asia ethylene prices was at minus US$5/mt Monday, after having turned negative on April 13, Platts data showed. Benchmark HDPE was assessed at US$1375/mt CFR Far East Asia and ethylene at US$1380/mt CFR Northeast Asia. The surge in ethylene was attributed largely to a heavier turnaround season in Asia's key ethylene producer South Korea, with three out of the 11 naphtha-fed steam crackers in the country having scheduled annual turnarounds during Q2. The shutdowns accounted for around 35% of South Korea's total ethylene production capacity of 7.86 mln tpa. Adding to this, a few naphtha-fed steam crackers in Asia were shut for unplanned outages, further tightening regional supply and pushing prices higher. Thailand's PTT for example, has shut its 515,000 tpa steam cracker in Map Ta Phut over late-March to end-April for emergency repairs. And in Japan, JX Nippon Oil and Energy will restart its 404,000 tpa steam cracker in Kawasaki by early May, after having shut the plant on April 24 for unplanned repairs. Further support for ethylene also came from positive ethylene derivatives margins, notably for styrene monomer, sources noted. The styrene-ethylene margin was estimated at US$140.90/mt on May 4, with SM prices driven higher by tight supplies from South Korea due to heavy turnarounds over March-May, a closed arbitrage window from the US to Asia as products were pulled to the more bullish European market over Q1-Q2, as well as low inventory levels in East China. Still, a few industry sources felt that impact from the current high ethylene prices on actual operational margins would be limited to just a few end-users, as many PE producers are integrated refinery and petrochemical complexes with no spot ethylene purchases, with the exception of a few isolated users in Southeast Asia.