Limited supply, strong demand continue pushing Asian ethylene market higher

The Asian ethylene market has escalated to multi-months high levels, especially for CFR Southeast Asia values, which hit the highest mark since 7 July 2015, on the back of tightening supply and strong buying interest in China.

It is reported that demand for spot ethylene in China remains relatively strong this week as buyers here continue searching for cargoes to meet immediate requirement while negotiating for 2018 term contract. At the meantime, supply is rather tight across the region with a number of major crackers entering maintenance shutdown season.

The current firming trend is expected to persist into January given a possibility that Chinese players might need to stock up inventories before the Lunar New Year holidays, sources said. “However, the upside is limited with several downstream markets loosing steam recently,” a trader said.

In fact, styrene monomer based on FOB Korea term has softened nearly $40/ton compared to early December due to easing supply concern in domestic China market. At the meantime, polyethylene (PE) is currently traded at negative margins considering the current ethylene costs. On average, import HDPE film to China stand at $1265/ton while LLDPE film at $1140/ton, CFR China, LC AS equivalent, based on CommoPlast Price Index – which are technically below ethylene costs.

Lacking of the support from major derivative markets, the surge in ethylene costs might humble down in the coming weeks. “Until Chinese players completed negotiating 2018 term contract, we think demand for spot cargoes are still presence,” another market source added.

Players in the PE sector are not responding strongly to the recent hike in ethylene prices, citing the concern over the medium term market outlook. Most buyers are looking at a potential influx on USA and Indian PE cargoes toward end of Q1 2018, which might dampen the general sentiment. “And therefore, we are very cautious about making large purchases, even for HDPE film. Our suppliers are very firm on the latest offerings due to high upstream costs. We are in in mid of negotiation,” a buyer said.