Japan earthquake, crude at US$100, fail to push Asian ethylene higher

Spot ethylene prices posted modest gains on a CFR NEA basis this week, while ethylene offers to Southeast Asia actually moved lower this week. Although the effects of the March 11 earthquake in Japan are still being felt and crude oil prices have moved past US$105/barrel on the Nymex for the first time since 2008, high stock levels in China and Taiwan along with poor production margins for PE have prevented ethylene prices from posting more substantial increases. Spot naphtha prices have also recovered from their immediate post-earthquake slump towards the US$1000/ton mark on a CFR Japan basis, but failing to give any major boost to spot ethylene prices. Spot ethylene prices on a CFR Northeast Asia basis have gained US$20/ton over the past week in line with strong upstream costs. Most players still feel that this increase is comparatively modest given the massive disruptions to Japan’s petrochemical supplies caused by the earthquake as well as ongoing political turmoil in the Middle East. Ethylene demand from buyers in major Asian markets such as China and Taiwan is said to be subdued due to relatively higher levels of stock in these countries. In addition, demand for major ethylene derivatives such as PE is also disappointing in Asia, with many PE producers complaining that they cannot cover their theoretical production cost based on spot ethylene prices even at the current price levels. Ex-Asia ethylene deals have been reported for export to Europe and South America as regional sellers look for alternative outlets in the face of slow local demand. Southeast Asian ethylene producers are also said to be selling to Europe due to lackluster regional demand. Spot ethylene prices on a CFR Southeast Asia basis have fallen by around US$25/ton over the past week. Although the recent force majeure declaration from Shell’s 800,000 tpa cracker in Singapore has generated some additional spot demand in the region, it has not been sufficient to off-set the negative impact of anticipated downstream plant shutdowns in Indonesia and Malaysia.