Plummeting ethylene spot prices in USA opening up arbitrage to Asia

30-Apr-10

Increasing supply in USA caused by cracker restarts as well as weak derivative polyethylene (PE) demand have tanked ethylene prices in the country. The recent plunge in US ethylene spot prices is opening up arbitrage opportunities from the Americas to Asia as reported by ICIS. Ethylene for May delivery was offered mid-week at 42 US cents/lb (US$926/ton), representing a 22% drop from deals done at 53-54.75 cents/lb during the week ended 23 April. Ethylene freight costs from the US to northeast Asia typically vary from US$260-280/ton for a large vessel carrying 6000-9000 tons to above US$300/ton for smaller cargoes. Current ethylene spot prices in Asia are above US$1300/ton CFR NE Asia. Hence it seems possible for the arbitrage to work, although the long voyage of 40-45 days, and limited appetite for spot material from selected derivative sectors might be a stumbling block in negotiations. Polymer demand in Asia, specially from PE producers is not very healthy. Standalone high density PE (HDPE) margins in NE Asia have remained in the red since December 2009 and were at a loss of US$126/ton last week. Standalone low density PE (LDPE) margins were positive at US$89/ton in the region over the same period. Ethylene spot prices were at a two-month high of $1,270-1,310/tonne CFR NE Asia in the first half of the week, underpinned by snug supply in the region due to an ongoing cracker turnaround season and outages at Japanese crackers in March and April. Issues with heavy naphtha also affected ethylene yields since February this year, at some crackers in South Korea, resulting in delays and cuts in term exports, which had further tightened supply in the market.