OREANDA-NEWS. October 16, 2015. The price of oil certainly has some effect on the petrochemical prices throughout the value chain, but supply/demand fundamentals will always be the biggest driver. It is the unplanned outages that create uncertainty, and that was certainly the case this year.

Due to the drop in the price of oil and its effects throughout the petrochemical value chain, global ethylene prices during the fourth quarter 2014 and first quarter 2015 decreased by an average of more than 30%.

However, due to supply disruptions during the second quarter this year, ethylene prices in Europe and Asia surged, while the US Gulf Coast ethylene price remained relatively flat before free-falling after August, causing an enormous price gap between regional pricing and creating arbitrage opportunities.

The price gap between the US and Asia quarterly average ethylene price reached \\$602/mt, while the price gap between the US and Europe quarterly averages was \\$482.66/mt. These price gaps are a result of the price disruptions in Asia and Europe, basic supply and demand fundamentals.

gonzalez-global-ethylene-prices

The plant outages experienced in Europe and Asia after the first quarter this year that had enormous impacts on regional ethylene prices, and it’s worth looking at some of the reasons why the US is currently experiencing record low ethylene prices.

It is important to note that when we refer to the total number of outages in a quarter, we are referring to what occurred within the quarter and not all at once.

Europe

During the second quarter 2015, European ethylene producers experienced outages in four steam crackers, totaling 2.1 million mt, of which 1.9 millon mt was unplanned. These included the OMV Schwechat, Total Feyzin, BP Gelsenkirchen, and Shell Moerdijk crackers. The NW Europe ethylene price rose from \\$1,088/mt in early April to \\$1,379/mt at the end of May.

In the third quarter, the region experienced more outages, equating to 5.1 million mt, of which 2.3 million mt was unplanned. In total, there were 10 crackers in the region that experienced planned or unplanned outages during the third quarter, roughly 7% of Europe’s total capacity.

In Western Europe alone, there were eight crackers that experienced outages totaling approximately 4.4 million mt, representing nearly 18% of the region’s capacity within the quarter. These units included Borealis Porvoo, BP Gelsenkirchen, Dow Bohlen, LyondellBasell Munchsmunster, Versalis Brindisi, Shell Moerdijk, Borealis Stenungsund, and Ineos Grangemouth crackers.

Asia

During the second quarter, Asian ethylene producers experienced outages in 10 crackers totaling approximately 6 million mt of capacity, of which most were planned. These plants included the Idemitsu Chiba, Mitsubishi Mizushima, Mitsui Ichihara, Nippon Kawasaki, Sumitomo Chiba, LG Daesan, Total Daesan, YNCC Yeochun, Formosa Mailiao, IRPC Map Ta Phut, and PTT Map Ta Phut. The Sumitomo Chiba cracker shut down indefinitely in May because it was unprofitable. While the total volume of the outages only represents 6% of Asia’s total capacity, the Japanese and South Korean outages represented 33% of each country’s total capacity. During this time, at the end of April, the Northeast Asia ethylene price reached a peak of \\$1,430/MT.

There were only two reported outages during the third quarter in Asia, totaling 1.3 million mt. These crackers included the Mitsui Ichihara and the Formosa Mailiao crackers. Both facilities were shut for annual maintenance.

With other production facilities coming back online during the third quarter, the NE Asia ethylene price dropped to \\$799/mt in late August. Additionally, prices were dragged down by high stocks as well as lower demand from downstream derivatives, such as shutdowns at vinyls and polyethylene plants in NE Asia. During this time, sources indicated that the trend in low ethylene prices was limited with the upcoming maintenance season and the easing of logistical issues occurring at the Tianjin port following the explosion in August. We are certainly seeing this now: The NE Asia ethylene price increased from \\$799/mt in late August to \\$935 in early October.

US

Ethylene prices in the US have been largely below \\$800/mt since February due to oversupply. However, with ethylene expansions during the third quarter, strong run rates at most Gulf Coast production facilities, and little to no outages, USGC ethylene prices dropped from \\$744/mt in late July to \\$424/mt at the beginning of October, levels not seen since December 2008.

Exacerbating the oversupply levels currently is the outage of an underground storage cavern at Mont Belvieu, Texas, which is limiting storage capacity. The underground storage maintenance should be completed by the end of the year, according to sources.

Outlook

Thus far for the fourth quarter we have seen announcements of five crackers out in Western Europe, with a total of 2.4 million mt of ethylene capacity, roughly 10% of the region’s capacity. However, all but one is expected to restart in October. The Total Carling naphtha cracker shut down permanently on October 5 due to unprofitability.

In Asia, we see more outages in China, Indonesia, South Korea, and Taiwan due to planned maintenance and turnarounds totaling 4.5 million mt. We have already seen the effects of these outages on Asian ethylene prices; the NE Asia ethylene price increased from \\$799/mt in late August to \\$935/mt in early October.

In the US, we have seen four announced cracker outages with a capacity of approximately 3.3 million mt during the fourth quarter, of which only one was unplanned. However, all are expected to be online by the end of October.