Price Spread Between NE Asia-SE Asia Ethylene Peaks To Near 6 Year High

Price spread between NE Asia-SE Asia ethylene peaks to near 6 year high

06-Sep-16

The spread between Northeast Asia and Southeast Asia ethylene prices rose US$5/mt day on day to US$130/mt at the end of the previous week, the highest level since January 19, 2011, when the spread was calculated at US$134/mt, S&P Global Platts data showed. Last Friday, the CFR NEA ethylene price was assessed unchanged day on day at US$1195/mt, while the CFR SEA marker fell US$5/mt to US$1065/mt over the same period. The widening spread is due to continuing strength in the NEA ethylene market, while the SEA market stays bearish. Market strength in NEA has been fueled by strong spot demand from the styrene monomer sector in China. According to trading sources last week, a few ethylene trades, for SM production, were reported at US$1195-1200/mt CFR China for September deliveries.

Even though most ethylene derivatives producers are suffering from negative margins currently, the SM sector is still able to reap profits based on current spot prices, according to Platts data. The SM production margin is calculated at around +US$15/mt, while the production margin of polyethylene is calculated at -US$210/mt as of Friday, Platts data showed. Some trading sources said the NEA ethylene market would likely remain stable as spot ethylene demand from the SM sector would continue for October arrival business.
On the other hand, the SEA market was under pressure amid rising deep sea supplies from the Middle East. According to shipping reports, around 54,500 mt of spot ethylene -- or around 18 standard-sized cargoes -- were bound for Asia from August from the Middle East. Most of the quantity is due to arrive in SEA in September.

Traders prefer to move Middle East cargoes to SEA as it is not economical to ship to NEA due to additional cost and longer voyage time. In addition, most ethylene ports in NEA are not large enough to discharge large-sized Middle East cargoes. Typically, a cargo size from the Middle East is around 5,000-6,000 mt, while a standard-sized cargo size is 2,500-3,000 mt. Market sources said the SEA ethylene market would remain under pressure from Middle East supplies. Saudi Arabia's Petro Rabigh has delayed the startup of its new polyethylene unit in Rabigh to early next year from later this year, sources close to the matter said last Friday.