Asian ethylene, propylene falter on bearish crude and oversupply
The recent gains in ethylene and propylene prices were driven by rising oil prices, as well as demand recovery in downstream markets. Earlier successful vaccination rollouts had led to a brighter outlook on demand recovery. However, countries are now dealing with new Covid-19 surges as the highly contagious delta variant drives up infections across India, Southeast Asia, Japan, Brazil, and the USA.
Market sentiment had been bullish amid the long crude rally, with higher oil prices seen as supportive of both naphtha and propane feedstocks, as well as boosting derivative product prices. Until the recent crude correction, oil prices had risen more than 45% in the first six months of 2021. Oil prices had turned more volatile with uncertainty over production plans by OPEC+. On Monday, prices saw the largest decline since last September as OPEC+ agreed to boost monthly oil supply by 400,000 barrels a day.
“With oil prices crashing to their lowest level, Brent at under $69/bbl, it’s not just oil markets but also the olefins market that are rattled. There is total risk-off sentiment currently. Buyers are now very cautious and seeking lower prices, or holding back on purchases,” a trader noted.
Spot ethylene prices were assessed at $975/ton CFR China and $945/ton CFR Southeast Asia on July 21, down $10/ton on the week. Spot propylene prices were assessed at $995/ton CFR China and $965/ton CFR Southeast Asia, down $20/ton on the week.
New capacities keep markets under pressure
South Korea’s GS Caltex started up its mixed-feed cracker located at Yeosu, around June 18. The cracker produces 700,000 tons/year of ethylene and 400,000 tons/year of propylene. LG Chemical’s third cracker at Yeosu, which has 800,000 tons/year of ethylene capacity and 400,000 tons/year of propylene capacity, has started up since June 11.
China will be adding eight ethylene crackers in 2021, with a total capacity of 7.8 million tons. This will raise China’s ethylene capacity to around 40 million tons by end 2021, or an estimated 23% increase from 2020. China is a major importer of ethylene and propylene.
For propylene, China will be adding six new PDH facilities, contributing a total of around 3.25 million tons of additional capacity by 2021. Fujian Meide Petrochemical started up it’s new 660,000 tons/year PDH facility in Fuzhou, Fujian in early February. Oriental Energy also started up its Ningbo phase-two 600,000 tons/year PDH plant in late February, increasing its total propylene capacity to 1.86 million tons/year.
In Southeast Asia, South Korea’s Hyosung is expected to start its new PDH plant with a capacity of 600,000 tons/year of propylene at the Ba Ria-Vung Tau Vietnamese petrochemical complex around September. Hyosung signed an agreement with the Vietnamese government to build a $1.2 billion complex in Ba Ria-Vung Tau province in early 2017. The complex comprises a 600,000 tons/year PDH unit, two 300,000 tons/year PP plants and LPG storage facilities. Its first 300,000 tons/year PP plant started operations in March 2020 using imported propylene.
SEA buying, arbitrage bolster propylene; ethylene under further pressure
Traders said that most H2 August business had been concluded at $970-980/ton CFR NEA for ethylene, and at $990-1005/ton CFR NEA for propylene. CFR SEA cargoes were traded at a discount of $30-40/ton to NEA prices.
Asian propylene prices will continue to be bolstered by the Asia-to-Europe arbitrage. To date, some 45,000 to 50,000 tons of propylene have been shipped from South Korea, Southeast Asia, and China. Additionally, Hyosung will likely be buying additional propylene feedstock for its PP plants until the strart-up of the new PDH facility at Ba Ria-Vung Tau in September.
“Ethylene prices will likely be under further pressure should downstream PE, as well as MEG, SM prices fall further with the oil price declines. Additionally, demand concerns and oversupply will weigh on buying sentiment,” said a trader.
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