Ethylene exports to Asia exert pressure on regional markets

Ethylene prices have been under the influence of excess supplies in Asia as increasingly more cargoes from the Middle East and Iran have been finding their way to the region. This fact overshadowed the year high crude oil values and the rebound of the downstream PE market, which is anticipated to be...

Up until mid this week, ethylene prices were on a downward track in Asia, being dragged down by the ample availability. Particularly an influx of ethylene cargoes from the Middle East have found a home in the region, causing a decrease of $40/ton from early October in Northeast Asia while it elicited a much larger decrease of $100/ton in Southeast Asia. As Middle Eastern sellers have shifted their attention to Southeast Asia with the benefit of relatively cheaper freight rates and shorter transit times, this has caused a larger decrease in the region when compared to that of Northeast Asia, narrowing the spread between the two regions.

The impact of these exports to the region have been so deep that spot ethylene prices in the region have remained indifferent to bullish developments such as the recovery of the downstream PE market following the return of the Chinese buyers from national holidays and surging crude oil. This week, crude oil futures on NYMEX hit the 2009 high, trading above $75/bbl.

Although ethylene prices have stabilized recently at $770-780/ton CFR Northeast Asia and $795-805/ton CFR Southeast Asia, concerns about growing supplies are still effective. Once more new capacities particularly in the Middle East are started up, excess supplies will continue to find their way to Asia until downstream units are operating at full rates after starting up, according to players in Asia.

The ethylene cargoes from Iran, which were interrupted up until September due to production issues, have been finding their way to the region recently although some sources noted that October shipment cargoes from the country have been secured on contract terms.

Indeed, the state of the new capacities in Saudi Arabia is crucial as increasingly more cargoes are finding their way to the region due to the lower operating rates at downstream plants. PetroRabigh has exported a noticeable amount of cargoes recently as their lower run rates at their PE plants have caused excess ethylene supply, which they diverted to the export markets. Another producer, SHARQ, is also expected to start up a new 1.3 million ton/year cracker in Saudi Arabia late this year while Ras Laffan is slated to commission a cracker with the same size in Qatar in the October- November period.

Regional sources also anticipate that ethylene inventories at South Korean buyers might also be accumulating as cracker operators are working with full rates because they are making sales to their domestic customers on a naphtha based formula, for which prices are very high at the moment. Therefore, inventories are thought to be accumulating in the country, which might stimulate spot sales for the near term, sources anticipated.