Asian ethylene costs rebound sharply, upside is limited by weak PE market

The Asian ethylene market makes a sharp rebound this week after nearly two months of constantly going down in the absence of buyers and improved supply condition. Ethylene costs based on CFR Northeast Asia jumped $50/ton from last Wednesday to $1300/ton – the highest level seen in a month.

Tightening supply ahead of the heavy maintenance shutdown season among Japanese cracker is one of the main reasons driving ethylene costs higher. In addition, it is reported that Chinese buyers are returning to make purchases for April loading to avoid supply disruption from Japan.

Sentiment also got boosted this week as South Korean’s LG Chem unexpectedly shutdown its 1.15 million tons/year cracker in Yeosu after a power outage occurred. The company is putting all effort to bring the naphtha cracker back online.

Supply push is supporting the firmer trend, however industry participants are not expecting prices to reach the previous high given the fact that downstream PE market is rather soft at the moment. Based on CommoPlast average index for import PE to China, the price spread between ethylene and LLDPE film is now at minus $83/ton and with HDPE film at positive $86/ton – much lower than a typical breakeven of $150/ton. South Korea’s SK Global has already planning for operating rate cuts at its PE units in April due to negative margins.