For polyethylene or polypropylene producers, integration to ethylene or propylene is becoming increasingly critical. This has led to most leading polyolefin producers backward integrating with a cracker, bringing their production cost competitiveness directly in line with the cost of ethylene production according to Nexant. Feedstock availability and cost has become the most significant for competitiveness, especially when making regional comparisons. The choice of feedstock and its pricing basis vary enormously between countries and regions, ranging from low cost ethane associated with remote oil or gas production, to higher cost ethane or LPG where alternate markets exist, and oil-derived feedstocks, such as naphtha, condensates, and gas oils.  Other significant influences on the cash cost of production include plant scale, technology, and other operating costs.
Polyethylene producers using naphtha as feedstock will face extreme pressure on margins due to capacity addition of ethane based crackers. 63% of global capacity additions in 2008-2012 will be in the Middle East and China, raising their share of global production to almost 28%. Ethylene capacity in the Middle East and China alone will account for almost 15% of worldwide installed capacity in 2008. The imminent increase in Middle East capacity has been delayed due to several factors including delays in equipment delivery, resource constraints, and the recent deterioration in markets due to the global economic meltdown. However, the capacities will come onstream shortly, causing devastation, particularly for liquids-based producers who be forced to shutdown, or into bankruptcy and in some cases to government rescue.
As per a report by Nexant, HDPE competitiveness is strongly related to the cost of ethylene production.  The plant in the Middle East , for example, integrated with an ethane cracker had the lowest cash cost of production.  As crude oil prices and other energy prices move in line with market demand, ethane prices in this region are less susceptible to the oil prices.  Other regions with an indigenous advantage of low gas feedstock costs, such as Venezuela, Malaysia, and other Middle East, although less cost competitive than the Saudi Arabian ethane-based plant, showed strong cost competitive position.  The ethane/propane-based plant in Saudi Arabia was also very competitive, although propane prices are affected by international naphtha prices and move in line with crude oil prices and market demand.
In North America, high ethane prices in 2006 resulted in uncompetitive economics for ethane-based crackers and derivatives; naphtha-based crackers and derivatives were only slightly less competitive.  Naphtha prices also settled at a premium over those in Singapore and Western Europe, supported by the strength of the United States gasoline market. South East Asian countries were amongst the most cost competitive locations outside of the �stranded gas� areas.  The strong cracker co-products markets within Asia supported lower cash cost of production for ethylene, leading to greater competitiveness on an integrated basis.  Japan and South Korea naphtha cracking showed the highest costs, due to high net raw material cost, fixed costs, and utility costs from high fuel prices. Although an analysis of the cash cost of production is a useful indicator of competitive positioning, freight, handling, marketing, and tariff charges, need to be considered to build up a relative cost position to supply a selected geographic market. Therefore, an analysis is also included in the report estimating the competitiveness of delivered costs to China - the world's major importer of polyolefins. This shows that the plants with the 5 lowest cash costs of production remain the 5 lowest delivered cost producers to supply China, even after freight and tariff considerations.  However, Chinese domestic producers become more competitive than all other imports due to the freight costs and tariff incurred.