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Asian ethylene and propylene remain firmly in contango

by Jennifer Lee -
  • 09/03/2021 (15:25)
Asian olefins prices have stayed at higher levels amid the global dearth of olefins supply, which resulted from US Gulf supply disruptions a fortnight ago. Icy weather had led to multiple ethylene and propylene facilities shutting down across Texas and Southeast Louisiana since February 13.

Asian ethylene prices have rebounded from their low levels in mid-February, rising sharply since February 23, and continue to trend higher this week. According to ChemOrbis Price Wizard, ethylene spot prices were at $990/ton CFR China and $960/ton CFR Southeast Asia on February 23. Prices have climbed to $1210/ton CFR China and $1160/ton CFR Southeast Asia on March 9.

Propylene prices were assessed at $1090/ton CFR China and $$1060/ton CFR Southeast Asia on February 23. Prices have climbed to $1175/ton CFR China and $1125/ton CFR Southeast Asia on March 9.

Traders remain bullish that the current higher prices of both ethylene and propylene will be well supported through March and for most of April. Their concerns with the higher prices are with the performance of their derivative product markets.

Downstream product prices have also risen when global supply disruptions filtered into key products such as polyethylene, MEG and ethylene oxide (ethylene feedstock) and polypropylene, acrylonitrile, acetone, phenol (propylene feedstock). The price hikes seen for each product vary and some may be peaking.

April ethylene market to stay in contango, prices may soon hit a ceiling

Traders said that most March business has been completed, with some incremental volumes left that may be transacted for end March. There have been some transactions seen for early to first-half April arrival. The steepness of the forward contango curve has been an issue of discussion, since the price reversal for ethylene has been brought about by dramatic supply disruptions.

Traders said that downstream demand recovery has been seen, perhaps at a slower pace than could justify the sharp price uptrend seen for ethylene. In fact, several traders are in agreement that how high ethylene prices can climb will pivot on downstream pricing support for the ethylene feedstock.

“For downstream products, their recent price hikes, also caused by global supply disruptions, may be ending. With MEG at $830/ton CFR China, and ethylene at $1200/ton, and adding production cost, the conversion is now at a negative margin. For polyethylene, with LLDPE and HDPE at $1130-1250/ton CFR China/SEA, the production cost is either just at break even or at negative. Only LDPE at $1500-1650/ton CFR China/SEA enjoys a healthy positive production margin with ethylene at $1200/ton,” said a Western trader.

Traders on the other hand, agree that the strong performance of crude oil will continue to provide ballast to naphtha and olefins prices, with “the recent failed Yemeni attack on a Saudi refinery being only the latest event to push oil prices up,” commented a trader.

Traders also talk about the US Gulf supply disruptions slowly balancing out. “We are now hearing more deep-sea, ex-USG ethylene cargoes heading to Asia for March and early April arrival. These are mainly contractual volumes and will not impact the merchant market in Asia. However, with more contract volumes heading to large buyers in Asia, there may not be the same robust support for higher ethylene spot prices” said a trader.

Some traders see ethylene prices peaking at $1250/ton CFR NEA/China for March to first half April arrival, before the next price transition.

Propylene has a wider margin but new PTTGC cracker may rebalance supply

Asian propylene prices have enjoyed a steady uptrend since January, and have continued to climb higher following the global supply disruptions. Additionally, propylene prices have also been bolstered by the Asia to Europe/US arbitrage. However, the arbitrage to Europe has almost closed, while the arbitrage to Latin America is limited in April.

The recent Petro Rabigh sell tender for 6500 tons of propylene was awarded above $1100/ton FOB Saudi Arabia and the cargo was reportedly headed to Columbia. There were various propylene tenders by major producers, including Formosa and Petro Rabigh, which saw higher prices concluded, from $1035/ton to $1260/ton FOB, and these were reported to have also headed to Europe and Mexico in February.

There is robust support for propylene at the current levels, with March cargoes purchased by Chinese end users at around $1150-1160/ton CFR China. There were also bids heard at higher levels for early April arrival while offers were reported above $1200/ton CFR China/NEA.

“For propylene, the downstream product prices have seen larger price hikes and there are greater margins in terms of production. Acrylonitrile, acetone, phenol and polypropylene prices are all at sharply higher levels than before. With polypropylene raffia and film at $1250-1450/ton CFR China/SEA, the conversion is at break even for China polypropylene prices and at a healthy production margin for SEA polypropylene prices. For acrylonitrile, acetone and phenol, the production margins are even higher,” said a trader.

In Southeast Asia, whilst supply has also been tight, the start-up of PTTGC’s 500,000 tons/year cracker will rebalance this tight supply with the capacity addition of 250,000 tons/year of propylene. “With the increased supply in Southeast Asia, prices may correct and product may flow towards Northeast Asia. This would temper any further price rise for NEA propylene,” commented a trader.
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