Sentiment in Asian ethylene, propylene markets turns bullish

Asian ethylene and propylene markets entered 2021 with confidence and look set to remain in contango for most of the first half of 2021.

On January 8, spot ethylene prices were assessed at $1060/ton CFR China and $1000/ton CFR SEA, up $50/ton from a week ago. Propylene spot prices were assessed at $995/ton CFR China and $935/ton CFR SEA.

Spot ethylene and propylene forward price curves fluctuated between backwardation and contango during late October and early November, as the news broke of the LG Chemical Yeosu cracker shutdown on November 5 following a fire. However, the restart of Lotte Chemical’s Daesan cracker on December 7 flipped their forward curves back into backwardation and caused the price outlook to be tempered for the second half of December and January.

Firmer crude finds reflection on olefins sentiment

Entering January 2021, there appears to be a shift in market perception again. A confluence of factors such as stronger crude and a more bullish global outlook with regards to vaccine development and availability to control the coronavirus have led to a greater confidence and optimism amongst market participants in the olefins markets.

“This has been a good start for most commodities, with strong crude leading the uptrend, and the regional stock markets have rallied as well. For olefins, traders will try to create a swing so that they could optimize the differentials. If the market stays put for 2 months or the first quarter, they can’t make money,” said a local trader.

East – West arbitrage lifts propylene

This week, Petro Rabigh issued three tenders, two for 6,000 to 6,500 tons of propylene, and the other for 9,000 tons of ethylene.

The first propylene tender for 6,000 tons was awarded in the mid-to-high $800s/ton FOB Saudi Arabia, loading January 10-11, and the cargo was reported heading to Europe, whilst the second tender for 6,500 tons of propylene was awarded at $860/ton FOB Saudi Arabia, loading January 21-22, with the cargo also reportedly heading to Europe, and it would land at above $1,000/ton CIF ARA.

The ethylene tender for 9,000 tons was awarded at $900/ton FOB Saudi Arabia, loading January 23, and the cargo would be delivered around $1,050 CFR NEA.

The tender awards reflect the strong price performance for both ethylene and propylene.

Unlike ethylene, the arbitrage for propylene did not open up from the West to Asia and in fact, has now swung from Asia and the Middle East to Europe and the USG, where higher prices in these markets are supporting higher prices for Asian and Middle East propylene cargo origins, as well as bolstering Asian propylene prices.

Deep-sea ethylene cargoes plug Asia supply gap in 1H, 2021

Whilst there were initial fears that the 30,000 to 40,000 tons of deep-sea ethylene cargoes heading to Asia would tank ethylene prices in January, there has been a revision in traders’ perspective. Although there are substantial volumes of deep-sea, mostly ex-USG ethylene cargoes heading into Asia, traders believe there will not be much pressure on prices.

Traders estimate there will be around 50,000 tons of deep-sea ethylene cargoes arriving in Asia in January, and another 50,000 tons arriving in February. These will arrive in 4 to 6 lots of 9,000 tons per cargo.

These are, however, mostly (80%) contract cargoes. The rationale for these substantial volumes is that Asia will have more plant maintenance turnarounds from April to June 2021, and that would knock out a lot of production in Asia.

“There will not be more than the normal deep-sea cargoes arriving in March as well, but Asian demand will be strong from the second half of March to May due to the increased plant maintenance turnarounds. So the deep-sea cargoes will unlikely affect ethylene prices negatively in Asia,” said a West European trader.