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Spot ethylene prices in Asia extend gains on tighter supply

by Başak Ceylan -
  • 21/01/2020 (09:14)
Spot ethylene prices in Asia extended gains in the week ending on January 17 as Chinese buyers continued replenishing stocks ahead of the Lunar New Year. Also supporting the uptrend in Asia was the supply availability, which has tightened after several producers began cutting operation rates at their plants amid poor margins.

Spot prices end 2019 on soft footing

Weaker market activities were exacerbated by the year-end slowdown in mid-December, leaving ethylene markets in Asia at crossroads. By early January, however, it became clear that most producers decided to lower cracker operation rates to restore some balance in the market.

Markets boosted by reduced availability

When compared to late December, spot ethylene prices on CFR China basis jumped around $85/ton in the week ended on January 10, supported by several upstream crackers running at reduced rates, as ChemOrbis Production News shows. In China, two producers reduced operation rates at their respective crackers and two crackers in Japan were also reported to be running at reduced capacities. A similar scene was seen at a South Korean company’s cracker, which saw rates fall to 80%.

The gains in spot prices followed a period of margin compression amid a push and pull of opposing factors.

Spot ethylene and crude oil track divergent routes

The opposing factors were the bullish upstream values versus weaker downstream demand. Oil futures marked their highest settlement in more than seven months on January 3, after remaining well within the upward trend for two months. Although crude moved upwards, as did naphtha values, a lack of activities and downstream demand kept Asian ethylene markets quiet.

As can be seen in the graph below, by early January, spot ethylene pricing in Asia increasingly diverged from crude oil prices. Backed by a pick-up in pre-Lunar New Year holiday restocking activities while supply is limited, the weekly averages of spot ethylene began tilting upward while crude oil prices started to fall back.

Prices on CFR China at highest in 4 months

On top of the restocking and prevailing tight supply, an unexpected outage at a Japanese cracker helped spot ethylene prices on CFR China basis finish last week at their highest levels since September 2019.
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