Challenging conditions to continue to weigh on global ethylene markets in H2 2024

European ethylene looks set to struggle with persistent poor market conditions across the second half of 2024, amid expectations of continuously structural weak demand and supply length against a backdrop of a weak macroeconomic and volatile geopolitical environment.

As anticipated ahead of 2024, domestic rationalization is set to begin in the second half of 2024. ExxonMobil and SABIC are set to shut their crackers located in Gravenchon, France, and Geleen, the Netherlands, with an annual ethylene capacity of 425,000 mt and 530,000 mt, respectively (see infographic).

However, according to market sources, the total lost capacity of the two cracker closures would not be enough to significantly affect market conditions amid structural length.

"The effects on the market will be minor, the whole market will continue as it has in the first half of the year, although the reasons may change," a producer said.

"The rationalization in Europe is a good start but it is barely scratching the surface in solving the global oversupply picture," said Andy Orszynski, an analyst at S&P Global Commodity Insights.

Alongside these cracker closures, LyondellBasell Industries announced in the second quarter a strategic review of its European assets, citing expectations of long-term challenging market conditions and increasing cost pressures from European regulations.

Ethylene producers in Europe have low expectations of a demand recovery in the second half, with plans to keep cracker run rates at reduced levels, despite the upcoming rationalization.

Derivative appetite is also expected to remain low through the second half of the year, as consumers continue to maintain already reduced contractual volumes.

Supply length to dampen Asian markets

Asian ethylene markets are likely to remain under pressure in the second half of the year, as naphtha-fed steam crackers continue to struggle with striking a balance between feedstock costs and derivative margins.

An oversupply of Asian ethylene is expected to persist, even as most crackers continue to run at reduced rates to manage costs.

Buying appetite is likely to remain lackluster, as buyers face similar issues with derivative demand due to a weak macroeconomic outlook.

"Overall consumption of finished goods is likely to remain capped as the post-coronavirus recovery has yet to really take off," said a trader based in Northeast Asia. "Inflation remains high, and economic growth is slow, which will continue to impact consumer spending as well as major infrastructure projects that tend to drive downstream demand and market sentiment. This will all eat into ethylene demand."

As production margins on key derivatives such as polyethylene, ethylene glycol, styrene monomer and PVC remain in negative territory, the ethylene complex is expected to remain soft in the second half the year.

Amid weak production margins on ethylene and its derivatives, most startups of new steam crackers in Asia are expected to be delayed into 2025 and beyond, with only two new crackers expected to start in the second half of the year (see map).

Limited change seen in US derivative demand

Prices for spot ethylene in the US were stable in the first quarter of 2024, despite various production issues throughout the period.

Long market conditions so far this year have been reflected in price stability, according to market participants. Unless there is significant change in downstream demand, prices are expected to remain stable in the second half of 2024, market sources said.

The spread between Choctaw and Mont Belvieu shifted during the first quarter, with Choctaw's levels staying above Mont Belvieu by around 2 cents/lb. Supply disruptions in Louisiana have had a greater impact on spot prices. This market structure could shift in the coming months, sources said.

There has been no new or outgoing capacity announced in US crackers for the remainder of the year, although it remains to be seen if the hurricane season (June through November) in the US Gulf Coast will affect run rates.

Enterprise Products Partners said its planned 50% expansion of its 1 million mt/year ethylene export terminal on the Houston Ship Channel remained on track to start up in the second half of 2024. The company said in its Q4 2023 earnings statement that this would be followed by a second 50% expansion in the second half of 2025. It did not comment on this during its Q1 2024 earnings call.

S&P Global Commodity Insights olefins analyst Walt Hart said the impact of increased exported levels remains to be seen, with the timings unclear as to how this will affect trade flows given capacity shifts in Europe and Asia.

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Chemical Trends H2 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

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