Falling ethylene costs and possible impact on downstream PE market

Ethylene prices in Asia have fallen below the $1000/ton threshold for the firs time in nearly nine months due to falling energy values and improving supply condition. Many industry sources are expecting further weakening in the near term as Shell Singapore have lifted force majeure at its naphtha cracker after encountered technical issues on 27 September 2016; and would add more supply to the already lengthy market.

Regional players are now expressing their concern over the possible impact of dropping ethylene costs on the downstream PE market and the general sentiment is well blended with a strong sense of caution.

A Chinese trader informed, “There are little changes in term of PE offers from international suppliers today; however, buying interest is very weak. We think with such large drop in ethylene costs, PE market might face some pressure to be down adjusted in the near term, especially when demand is not supportive.”

Meanwhile, other players are more optimistic with an international trader added, “We do not think the impact on the PE market is significant since most producers were operating at very narrow to negative profit margins in the past several months amid high costs.  Besides, PE supply is still not sufficient; hence we are not expecting any large adjustment in term of prices.”

Weakening ethylene costs stand alone as a factor might not give players a clearer outlook, however, in addition to the adjournment of maintenance shutdown at Saudi’s PetroRabigh and Malaysia’s Lotte Chemical Titan, PE supply might not be as tight as it was initially expected, market participants said. A regional buyer added, “Even our Thai supplier is sourcing ethylene from spot market to produce some HDPE film, and we think market would still be able to secure needed cargoes. It is uncertain if prices would drop as suppliers are lacking of sales pressure; one thing clear to us is that any attempt to increase offers further will bump into resistance.”