January 09, 2024

Petrochemicals and polymers: Quarter four performance

Asia Pacific

Asian petrochemical markets strengthened into quarter four, with supply shortening against firming demand.  A busy period of scheduled maintenance initially led supply side pressure on markets.  Demand firmed as a renewed upturn in crude oil prices prompted restocking.  Tightening markets eased surplus offered into global markets at a low price point earlier int the year.  Fragile end use demand retained thin profitability, heavily capping prices against firming costs into quarter four. 

More frequent maintenance turnarounds created shortness in ethylene and coproducts across Asian markets in quarter four.  The 1.5 million tons per year Reliance cracker at Jamnagar was offline throughout October and most of November.  In Saudi Arabia, the outage from mid-October to mid-November at the 1.3 million tons per year SHARQ cracker also reduced the availability of some ethylene derivative exports such as MEG.  Falling crude oil prices and Panama Canal shipping issues gave some protection against U.S. imports, supporting higher Asian spot prices.  Ethylene margins recovered slightly but remain thin. 

The propylene market in Asia was relatively weak, reflecting similar position of derivative markets.  Demand for exported goods remained relatively weak, but other areas of the economy such as construction showed signs of firming.  Propylene prices stagnated in lengthy markets, resisting the upturn achieved by many other products.  Propane dehydrogenation operations suffered worst margin erosion as propane prices increased sharply ahead of relatively flat propylene prices.  Higher propane prices also favoured a swing towards naphtha cracking at flexible feed crackers around Asia. 

Turndown of ethylene production against oversupply outpaced demand changes in C4 chain, leaving some regions deficient in crude C4s for butadiene extraction.  Availability was further restricted by some significant plant outages in quarter four.  Supply gaps placed upward price pressure on butadiene as imports returned for the first time in a year.  Following the steep increase in butadiene prices over quarter three, negotiations held prices broadly flat into quarter four, providing a quarterly average price 23 percent higher than that of quarter three.  Butadiene retained a significant price premium over ethylene and propylene. 

United States

Widening cost advantage strengthened petrochemical markets in the United States despite persistent economic pressures retaining a cap on demand.  Abundant supply of natural gas liquids resisted seasonal upturn in natural gas costs, with record high production reported.  Firming demand was led by export business, where cost advantaged material took market share despite global oversupply deepening competition.  The NexantECA petrochemical and polymer profitability index rebounded 30 percent from historic lows suffered in quarter three, restoring margins towards those achieved in first half of year. 

Ethylene markets in the United States were supported by production outages, with more than three million tons of ethylene capacity halted in November.  Production costs resisted firming natural gas costs into the winter season as ethane costs dropped significantly from a peak in September.  Firming netback of derivative exports and tight supply following outages lifted ethylene prices and provided a significant increase in profitability.  Leader cash cost margins on ethane, propane and butane cracking settled around $330 per ton in quarter four.  Ethylene cost advantage allowed ongoing penetration of export markets despite global oversupply.  Average ethylene prices through October and November rolled over from quarter three, providing stronger ethylene margins at ethane crackers.   

Strengthening propylene markets in the United States offered lucrative profitability, with strong demand elevating prices against a considerable reduction in costs.  A 20 percent fall in gasoline prices reduced value of propylene at the refinery.  Record propane production in the United States depressed domestic prices significantly below those in other regions.  Cost advantage provided strong PDH economics.  Exports of propylene reached highest since early 2020 at 75 000 tons in October.  Strong demand left propylene inventories low approaching end of year.  Reduced run rates at refineries and a fire at the 750 000 tons per year Enterprise PDH unit at Mont Belvieu shortened supply.  Demand remained more resilient than other regions and tightening markets increased November prices 5 cents per pound (US$110 per ton). 

Butadiene demand in the United States remined slack, with offtake to tire plants declining.  Steep cost escalation compounded market pressures and profitability tumbled towards historic lows.  Falling gasoline prices undermined value of raffinate-1 and increased crude C4 feedstock costs extended cost pressure on butadiene towards $350 per ton.  Progressive increases in September and October lifted butadiene prices 28 percent, but grater pace of upstream cost pressure collapsed butadiene margins.  More healthy derivative margins allowed increasing butadiene monomer costs to be swiftly adsorbed.   

Western Europe

Commodity petrochemical markets in Western Europe faced continued fragile demand as adverse economic climate was prolonged.  Inventory management was prioritised as prospects for recovery were pushed back into 2024.  Petrochemical markets remained broadly balanced as scheduled maintenance turnarounds concentred in October caused greatest disruption of the year to production.  Upstream cost pressure relaxed as downside risk to demand of fragile economic environment briskly displaced supply side risk premium from political pressures in the Middle East.  Crude oil price tumbled twenty percent to open December at the lowest price point of the year.  Seasonal pressure form gas prices was more as early stocks were built.  The NexantECA petrochemical profitability index firmed from record lows suffered in quarter three to realign with the more typical floor seen in previous downturns.  

Demand for commodity petrochemicals in Western Europe remained thin, with volumes in many sectors stagnating.  Contract business was confined to the lower end of contractual obligations, with little interest in promoting volumes to seek rebates approaching year end.  Consumer spending remained muted and economic activity across the Euro-zone stagnated, with 0.1% contraction of GDP in quarter three reversing modest growth achieved in the first half of the year.  A steady downturn in crude oil prices retained focus on inventory reduction.  Downside risk to demand from year end stock management was less apparent as fragile markets encouraged lean stocks throughout much of the year. 

Petrochemical production in Western Europe was aligned with fragile demand and shortening supply held markets in a balanced to long position.  The busiest period of the year for planned turnarounds at crackers in October and November shortened supply of base petrochemicals.  Feedstock supply from refineries shortened as five refineries planned maintenance in October.  Strengthening Asian markets through quarter three narrowed availability of import cargoes.  Ample domestic supply was efficiently redistributed to cover fragile derivative consumption and prevent any bottleneck.  Operating rates continued to be turned down heavily to balance markets. 

Oil prices fell heavily through November as a bleak economic environment displaced supply side risk.  Brent prices tumbled 20 percent and settled below US$80 per barrel at lowest price point of year in December.  Cost of petrochemical feedstocks sourced from the refinery followed downturn of crude oil prices in demand constrained markets.  Naphtha prices dropped US$100 per ton from their September peak to settle at a floor approaching US$600 per ton.  Propane retained a considerable discount to naphtha, with seasonal upturn in gas prices more muted than last year.  Steep downturn in gasoline values drove refinery margins down towards more typical profitability and eased pressure on petrochemical prices competing in gasoline pool. 

A persistently weak economic climate offered no relief to the fragile demand that has plagued European ethylene markets throughout the year.  Shortening supply as technical failures followed a busy period of scheduled maintenance broadly retained market balance.  A downturn in naphtha costs depressed cash cost of the Standard naphtha cracker US$200 per ton, surrendering half of the cost burden built in quarter three.  Contract prices lagged cost savings as political tensions retained upside risk in crude oil prices.  Margins increased US$120 per ton, reviving profitability to the average achieved over the last three years since emerging from the shock of the COVID-19 pandemic. 

Shortening supply through a busy period of scheduled maintenance at crackers and refineries eased pressure on European propylene markets despite weakness of Euro zone economies retaining frail demand.  Profitability surrendered as costs escalated to a peak in September was briskly recovered as upstream costs.  Cash margins of on purpose production at propane dehydrogenation units increased US$125 per ton through October and November, strengthening towards average for the year.  Lengthy petrochemical markets remained unable to bear higher value of propylene to the gasoline pool. 

Butadiene demand in Western Europe firmed as a steep upturn in Asian prices revived export opportunities for butadiene and derivatives.  Butadiene markets tightened as slack domestic demand for ethylene led to a shortage of mixed C4 feedstock from steam crackers.  Butadiene production costs resisted easing upstream costs and strengthened to a five month high as naphtha prices fell steadily after peaking at their highest of the year in September.  Firming costs depressed margins towards the floor suffered in a higher cost environment in opening months of the year. 

Polymer demand in Western Europe remained frail as seasonal inventory reduction compounded slack end use demand stemming from persistent weak economic climate.  More frequent imports from the United States, and the Middle East deepened pressure on the market.  Firming resin prices largely tracked upstream monomer costs, holding margins at the polymer unit at historic lows.   

Intense cost pressure suffered by aromatics markets through the summer season relaxed as gasoline values dropped around 20 percent.  Prices in petrochemical markets followed the downturn in gasoline blending values at the refinery which continue to set the floor to prices in weak petrochemical markets.  Margins of producers integrated to naphtha fell heavily as weakening gasoline values narrowed reformer margins.  The drop in gasoline values reversed losses on toluene conversion, although supply was not required in the domestic market. 

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Quarterly Business Analysis: Petrochemicals, Polymers and C1 Chemicals - Q4 2023

The Quarterly Business Analysis provides key insight into production economics for a broad range of commodity petrochemicals, polymers and C1 chemicals.  The analysis presents a review of costs, prices and margins for typical production assets, providing a valuable view of regional and value chain competitiveness and is is available for each key price setting region - Asia Pacific, Middle East, Western Europe and the United States.  A quarterly report provides insightful commentary to illustrate current trends, related to recent market developments.  The accompanying database is updated monthly.

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