Integrated PE margins in Asia expected to remain healthy

20-May-16

Integrated polyethylene-naphtha margins are expected to remain healthy and above average margins of US$210/mt, riding on increased demand in PE for packaging, as per trade sources in the Asia Petrochemical Industry Conference in Singapore, as per Platts At present, PE-naphtha margins average $256/mt, according to Platts calculations., calculated from the difference in raw material naphtha and PE prices minus a conversion cost of US$500/mt. Integrated margins are expected to trend lower in Q3 due to high naphtha prices on the back of strong buying interest for other petrochemicals and an increase in naphtha demand for gasoline blending during summer driving season. PE prices however, are expected to trend lower with the onset of the traditional seasonal lull during the third quarter. But margins may pick up again as PE demand will tick up in September as manufacturing activities gear up to meet Christmas demand. Meanwhile, outlook for unintegrated producers, that is, producers who buy intermediate feedstock ethylene to feed into PE units, was unclear. PE-ethylene margins have been volatile, trending into the positive region in February, but for the most parts, remaining at negative levels, according to Platts calculations. Unintegrated margins currently stand at around minus US$200/mt, taking into account the different in spot ethylene and PE prices minus a conversion cost of US$150/mt. Traders attributed the current strength in ethylene to tight supply during steam cracker turnaround season in Q2. But producers may maximize ethylene yield from steam crackers throughout 2016, lending to a soft outlook for ethylene, traders said. Sources surveyed were unable to give estimates on how the anticipated relative decrease in ethylene may be, compared with polyethylene, in order to estimate the unintegrated margins. "I think it will just be volatile like what we've seen in the first four months," a trader said. "But since most producers are integrated anyway, this is likely to have little impact."