Chemicals, Solvents & Intermediates, Olefins, Polymers
December 16, 2024
Capacity shifts, soft downstream demand to shape ethylene market in H1
HIGHLIGHTS
European production margins cause for alarm among producers
US supply uncertainty prompts rise in hedging, paper market activity
Feedstock price volatility a concern in Asia ahead of capacity additions
General market weakness in the past year is expected to carry through into 2025, as the global cracker industry faces varied challenges across regions.
Europe's producers confront closures, the US prepares for significant maintenance amid rising prices, and Asia grapples with new startups against a backdrop of feedstock volatility; all the while each region faces subdued downstream demand.
Europe cracker rationalization threatens stability
Production capacity rationalization in response to persistently weak demand and economic pressures over the past few years in Europe could cause a period of instability as producers look to regain profit margins.
"Overall, uncertainty dominates the European olefins market," a producer said. "The industry is operating at full range; similar volumes but poor margins."
As Europe struggles to maintain competitiveness on the global stage with negative ethylene plant margins each month in 2024 except for September, according to S&P Global Commodity Insights, talk among participants is centered on who will shut down operations next.
Weak fundamentals are expected to continue, and ethylene's profitability will remain the primary driver of cracker run rates in Europe. Europe's cracker rates have averaged around 60%-70% through 2024, market sources said, substantially lower than the roughly 87% on the US Gulf Coast, according to Commodity Insights data.
With such tight margins, European producers will continue to maintain operating rates only to meet contracted volumes and avoid supplying material into the spot market.
"Most of the current contracts were discussed two years ago with conditions completely different," a consumer source said. "Demand has totally shifted, these volumes are not realistic anymore ... there has to be a realignment."
US market under pressure ahead of turnaround season
US ethylene producers have been stocking up ahead of substantial turnarounds in H1 2025, pushing US spot prices to near three-month highs in December 2024.
Platts assessed the spot Mont Belvieu ethylene price at 27.375 cents/lb FD on Dec. 6, the highest since it was assessed at 28 cents/lb on Sept. 23, Commodity Insights data shows.
"Pipelines and storages are full," a source said.
Several US producers, including LyondellBasell, Chevron Phillips and Dow, have announced H1 cracker turnarounds in the Gulf Coast region that would take out about 4 million mt/year of ethylene, or roughly 10% of US output.
The trend of building inventory goes against typical seasonal behavior of a destocking in response to end year-end inventory taxes in Texas.
"It's counter-intuitive, but ultimately it responds to an upcoming high turnaround season," S&P Global analyst Robert Stier said, adding it seems companies are willing to pay the inventory tax to avoid expected supply bottlenecks in 2025.
Uncertainty surrounding physical future supply has spurred an increase in paper trading as participants look to hedge their exposure, with memories of 2024 price volatility still fresh. In 2024, prompted by unexpected shutdowns midyear, physical spot prices in the Mont-Belvieu pipeline system fluctuated in a 20 cents/lb range, reaching a two-year high midsummer before shedding almost a third of that value in September.
Asia continues to add capacity
While Europe eyes permanent shutdowns and the US Gulf prepares for a high turnaround season, Asia awaits new cracker startups, predominantly in China.
These integrated complexes would lead not only to ethylene supply growth, but increased supply of downstream ethylene glycol and polymers.
However, feedstock price volatility and less-than-positive projections for demand recovery in downstream sectors are likely to limit the run rates of steam crackers, several market sources said.
"The spreads between ethylene and naphtha have been dismally low in 2024, and while cracker operators are keen to bring that spread back into positive territory, many are also treading very cautiously to avoid making further losses," a Northeast Asia-based trader said.
The average ethylene-naphtha spread has been around $204/mt in 2024, under the typical breakeven spread of $250/mt for integrated producers, Commodity Insights data shows.
Despite its capacity growth, China will also continue to import ethylene from South Korea to feed its spot market and non-integrated downstream plants, which will feel little impact from integrated cracker startups.
Chemical Trends H1 2025
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
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