CFR Northeast Asia-FOB Korea olefins spread seen wider as competition intensifies

The price spread between the CFR Northeast Asia/China and FOB Korea would likely widen in the near future, as competition with global suppliers intensifies amid surging deepsea cargoes, according to market sources.

Traditionally, the spread between the CFR Northeast Asia and FOB Korea is lower than the typical freight cost of $50-$60/mt, which some market players call "Korea premium."

Buyers are generally willing to pay such a premium to secure cargoes that are in limited supply amid logistics constraints. However, they are now able to procure them from alternative sources -- a trend that could widen the price spread between the CFR NE Asia/China and FOB Korea, sources anticipate.

The price spread between CFR and FOB in propylene was calculated at $31.66/mt so far in 2023 compared to $3.47/mt a year earlier, while that for butadiene was at $33.40/mt year-to-date from $7.39/mt in 2022, S&P Global Commodity Insights data showed.

Meanwhile, the ethylene spread stood at $16.542/mt versus $21.51/mt a year earlier.

"So many deepsea cargoes available in Asia. FOB Korea maker is not as strong as before," said a trading source.

This influx of deepsea cargoes from the Americas and Europe is set to continue in 2024, as global suppliers continue to find a home for excess product, market sources said.

Some industry sources said there would be a steady flow from the US with some suppliers in that region keen to sign term contracts with Asian end-users.

Cracker runs low amid negative margins

South Korea has been running the country's naphtha-fed steam crackers below 100% for two years amid negative olefins margins.

The steam cracker operations would likely remain at around 70%-75% in 2024, similar to 2023, according to Paul Joo, director of olefins and derivatives at S&P Global.

The country's ethylene and propylene exports have fallen in recent years, but the decline has not resulted in the country turning to a net importer yet, industry sources said.

Exports of ethylene and propylene products would likely continue in the near term, in a bid to clear excess supplies despite lower cracker runs, sources anticipate.

Meanwhile, South Korea turned a net importer of butadiene in 2023, in line with rising supplies of deepsea cargoes, according to the customs data and industry sources. And the trend will likely remain in 2024.

With low domestic demand and surging deepsea supplies, producers globally will be seeking export opportunities to Asian destinations -- likely widening the olefins spread in the near future.

Net olefins balance for 2023

Product-wise, South Korean ethylene exports fell 35% on the year to 888,012 mt over January-October, the official data showed.

Industry sources said end-users in Asia will continue to seek ethane-based deepsea cargoes -- typically from the US and Middle East -- which are reasonably priced compared to naphtha-based Asia-origin ethylene.

"We can afford to wait [for deepsea cargoes] but we can not afford [South] Korean cargoes," said a buyer.

Meanwhile, South Korea's ethylene imports rose in a bid to cover supply shortfall from local producers.

The country imported 143,318 mt of ethylene over January-October, up 14% from a year earlier, according to the latest statistics. Based on the data, South Korea remained a net exporter of ethylene at 744,694 mt of surplus.

Analysts at S&P Global expect South Korea to remain a net exporter of ethylene in the near term despite the steam cracker operations running at around 70%-75%.

"Steam cracker operations in Asia would likely remain low in 2024, in line with negative olefins margins," said an industry source.

South Korean propylene exports inched down 3% to 1.28 million mt, the data showed. S&P Global's Joo said export volume was available from South Korea, in line with lower downstream polypropylene plant operations, which averaged at around 60%-70%.

The country's propylene imports rose 16% from a year earlier to 99,214 mt during January to October, keeping South Korea a net exporter with 1.185 million mt of surplus.

South Korea turns net importer of butadiene

The country became a net importer of butadiene in 2023, recording a deficit of 100,512 mt for the January to October period, compared to a surplus of 18,436 mt, the customs data showed. This was in line with large influx of deepsea cargoes from Europe and the US. Market sources expect the trend to continue going into next year.

Some sources anticipate steady butadiene supplies from the US following a shutdown of butadiene downstream adiponitrile plant there. A US producer is also seeking opportunities to sell cargoes to Asia on a term contract basis for 2024, according to trading sources.

South Korea's butadiene exports fell 17% from a year earlier to 166,438 mt over January-October, impacted by lower steam cracker operations, while imports jumped 47% to 266,950 mt during the same period, according to the statistics and industry sources.

Explore all stories

Chemical Trends H1 2024
This feature is part of our bi-annual report analyzing the biggest themes and trends that will dominate chemicals markets in the year ahead. Explore more features below, or to read articles looking at the year ahead for a wider range of chemical markets, visit Platts Connect

Gasoline demand, tighter supplies seen supporting 2024 Asia PX prices

Phenol/acetone markets anticipate additional capacity, weak demand

China's petrochemicals market sees headwinds in H1 2024 amid property sector woes

India remains bright spot amid struggling Asian chemicals markets

Propylene, polypropylene slump expected to persist in H1 2024

Recycled polymers demand set to ease in Q1 on regulatory woes, global uncertainty

Chemical makers call for more effective energy transition investment policies in 2024

No recovery in sight in 2024 for Europe's crisis-ridden chemical industry