European ethylene value chain sees weak demand in March; uncertain outlook for Q2 2023

Spot activity in the European ethylene market was muted for most of March amid ongoing weak demand, provoking wide uncertainty from market players.

European demand has remained subdued throughout the first quarter of 2023. Particularly muted buyer appetite was noted in March, as market players observed no requirement for extra intake of ethylene from consumers with demand limited across derivative markets.

This weakness in buyer appetite extended to the bottom of the value chain, with end-user consumption in key food packaging, automotive and construction industries also noted to be weak. Market players said this was putting pressure on upstream polyethylene markets, resulting in low to empty orderbooks through most of March.

Further highlighting this pressure after the March industry-settled contract price for ethylene rose Eur30/mt, sellers in derivative markets struggled to pass through the increase in the feedstock cost, which met resistance from consumers with weak appetite for material.

Supply tightens with cracker run at reduced rates

Despite the continued weak demand, fundamentals in the European ethylene market throughout March were heard to be more balanced than the end of the fourth quarter of 2022. Production run rates remained at reduced levels, heard at between 70%-80% from market sources, as producers attempted to mitigate the effects of the limited buyer appetite.

Market participants offered limited comments on the spot market throughout the month, with weak spot activity seen due to the lackluster demand. Limited buyer appetite from derivative markets had some consumers of ethylene reducing their contractual intake for fear that volumes of their material would not be sold.

"Spot market has been muted and we are not in the spot market generally, not at this point of time," a consumer said.

Pricing was generally stable throughout March as a result of stable discount levels and weak spot activity. According to S&P Global Commodity Insights data, the average March European ethylene three- to 30-day free-delivered Northwest spot price was Eur915.67/mt, a drop of Eur14.33/mt from the February levels.

MEG market under pressure from weak fundamentals

In some ethylene derivative sectors, the European monoethylene glycol market remained under pressure in the latter stages of March as ample supply pressured both barge and truck prices. As of March 31, average March naphtha prices were down around $42/mt from the February average -- a leading indicator for European cracker costs, according to S&P Global data.

This follows a Eur30/mt rise in March ethylene costs and compared with an initial March MEG contract price settlement down Eur35/mt. Glycols market sources pointed to further delayed import resupply vessels having arrived in March, in addition to the other contracted vessels.

Both polyethylene terephthalate and antifreeze demand -- the principal MEG demand segments -- were considered weak. Antifreeze season is largely over as we move into spring. However, the start of spring is typically the season that normally sees higher demand for PET, as consumers tend to purchase more bottled liquids.

"Demand from the PET sector is very weak but hopefully picking up going into the season. Consumption for antifreeze is becoming less; rest of demand for solvent applications is ok but not great," a distributor said summing up the state of market apathy.

The fundamentals of weak demand and oversupply pressuring the European glycols market had in turn put pressure up the value chain on the European ethylene market as demand for the feedstock was significantly reduced in March, according to market players.

Imports exacerbate weak PVC demand

PVC demand remained subdued throughout the month, with global supply enhanced by the weakness seen recently in both China and Turkey, further putting pressure on the upstream ethylene market alongside other derivative markets.

With Chinese PVC demand softening, South Korean producers that had sold volumes above $1,000/mt CFR into the Turkish market were now under pressure to discount amid the lack of Chinese consumer apathy. This also pressured European PVC producers amid overall weak chlorine costs, with consumers unwilling to accept increases which meant further margin compression.

Platts, part of S&P Global, assessed polyvinyl chloride CFR Turkey spot prices down $65/mt on the week at $815/mt April 5, while free-delivered Northwest Europe spot prices were assessed down Eur50/mt on the week at Eur1,090/mt.

Market outlook for Q2 2023

Given the weak fundamentals of limited demand, reduced supply and muted spot activity, market participants remain bearish in their outlooks for the second quarter of the year.

Demand for ethylene is expected to remain limited, with buyers maintaining their contractual consumption and not requiring additional material, overshadowing potential spot market activity even further. European producers appear to have no intentions of returning to full capacity, market sources said, keeping domestic supply at reduced levels in an effort to match the weak demand.

Looking downstream, European polyethylene players also remain unsure, as traditionally plastic consumption increases in Q2, but buyers remain cautious with purchasing.