Petrochemicals and polymers: Quarter one performance

Asia Pacific

Asian producers sought to improve margins in the opening months of 2024 after profitability closed 2023 at its lowest of the year.  support from the market balance was muted, with demand continuing to disappoint in many sectors.  A renewed upturn in crude oil prices deepened cost pressure as naphtha prices firmed to the highest since September 2023.  Consistent price increases through January and February proved too much for derivative markets, and prices started dropping as demand stalled after the New Year holiday in China.  Logistical issues headed by security alerts in the Red Sea impaired competitiveness of exports to Western markets, with lengthy delays and much higher shipping costs for material diverted from Suez around Cape of Good Hope.

Cracker profitability improved in the opening months of 2024, largely due to an upturn in co-product revenue for propylene, benzene and butadiene.  Profitability of integrated operations was less encouraging as downstream consumers failed to accept higher price point.  Coal-to-olefin producers benefitted from a modest downturn in coal costs.  A Similar trend was seen for on purpose propylene operations and butadiene operations continued to suffer declining profitability.

Most propylene derivatives recorded declining prices as demand declined after the Lunar New Year.  Profitability in the propylene derivatives market remained depressed except for noticeable improvements in chlorohydrin and HPPO propylene oxide operations.  Propylene oxide prices rallied after a series of supply disruptions in the China amidst low demand.  Acrylonitrile profitability firmed above cash cost breakeven as ammonia costs fell heavily.

Demand remained weak in the styrenics chain as consumer spending remained cautious despite stimulus offered by the government in China.  Offtake into the automotive sector improved steadily, but high inventories continued to cap production in the styrenics chain.  Butadiene costs escalated, leading to reduced profitability in derivative operations.  Demand for tyres slowed leaving high stocks after the Lunar New Year. Butadiene derivatives suffered lower profitability across the board in opening quarter of 2024.

Mixed xylenes prices were driven up firming demand of gasoline blending around the New Year holiday in China.  A renewed upturn in crude oil prices hastened upturn in xylenes prices through January.  Polyester market remained weak with disruption to shipping through the red Sea compounding slow demand for exports to Western markets through the winter season in the Northern hemisphere.

United States

Widening cost advantage strengthened petrochemical markets in the United States despite persistent economic pressures retaining a cap on demand.  Confirmation of ample natural gas stocks through the winter enabled NGL feedstock costs to resist latest supply side led upturn in crude oil prices.  Firming demand was led by export business, where competitiveness was enhanced by steep increase in shipping costs and lengthy delays to cargoes from East of Suez.  Steep increase in gas supply contracts in Saudi Arabia approached the cost base in the United States.  The NexantECA petrochemical and polymer profitability index remained broadly steady, preserving profitability at the upper end of the range achieved over the last 18 months.

The petrochemical industry in the United Staes remained constrained by relatively weak domestic demand for derivatives.  Production of olefins and polyolefins remained highly profitable, with NGL feedstock offering considerable cost advantage.  Ethane cracking remains most prevalent source of ethylene in the United States and low gas costs were promptly reflected in ethane costs.  Winter heating demand contributed to higher costs for propane and butane, and some margin was correspondingly surrendered on cracking.  Naphtha prices were stable and higher co-product revenue headed by propylene firmed margins where limited quantities of naphtha were cracked.

Polyethylene production decreased in January as domestic resin sales continued to drag, with manufacturing indicators all negative.  Enhanced competitiveness in ethylene provided for a steep increase in export sales for major resins.  Cost advantage in ethylene remained strong enough to preserve throughput of export terminals at full capacity.  Most of the volume has shifted to European customers accessible without need for limited vessel space through either the Suez Canal or the Panama Canal.

Overlapping scheduled maintenance turnarounds kept the propylene market balanced despite the downstream picture generally being less buoyant.  Supply from refinery FCC units shortened due to widespread refinery turnarounds and higher alkylation values.  Two 750 000 tons per year PDH plants went down for major turnarounds in quarter one, taking out a substantial share of merchant propylene availability, and contributing to higher spot prices.  This in turn made some marginal derivative production unviable.  Propane prices in the United Staes settled US$220 per ton below those in Asia, conferring a major competitive advantage.  Tight supplies lifted propylene prices in step with those of propane in quarter one.  Strong margins on some propylene derivatives such as phenol and butanols remained available, while margins on acrylonitrile and propylene oxide were less able to deal with higher propylene costs. 

Butadiene extraction from mixed C4s purchased at market price was again heavily loss-making in quarter one.  Prices were capped by global competition and cost of mixed C4 escalated as a result of the margin shift in favour of light feedstock cracking.  Combination of restricted crude C4 availability, and unplanned production losses at USGC plants tightened markets.  High values for gasoline-related components in raffinate-1 supported extraction economics, but also motivated some crude C4 selective hydrogenation at those facilities capable of doing so.

Western Europe

Commodity petrochemical markets in Western Europe remained burdened by fundamentally fragile demand as risk of recession in Euro-zone economies continued to sap consumer confidence.  Greater preference for sourcing domestic materials buoyed demand as import cargoes from East of Suez were heavily disadvantaged by diversions away from the Red Sea following repeated attacks to vessels.  Deepening geo-political tensions in the Middle East risked firming feedstock costs as crude oil prices rebounded to a five-month high above US$85/bbl in March.  A lengthier view of gas markets widened cost advantage of processing NGL feedstocks.  The NexantECA petrochemical profitability index firmed from record lows suffered in the second half of 2023 but remains precariously close to floors suffered in previous downturns.

Demand for commodity petrochemicals in Western Europe firmed in opening months of 2024 after a stringent focus on stock control depleted inventories closing 2023.  A persistently adverse economic climate continued to promote restrained purchasing.  Euro zone GDP stagnated in closing quarter of 2023, approaching a technical recession.  Repeated attacks to vessels in the Red Sea left vessels reluctant to transit the Suez Canal.  Supply of imports shortened as material from East of Suez risked lengthy delays and escalation of shipping costs.  A greater focus on security of domestic supply prompted an upturn in demand as imports were backed out.  Export opportunities from Western Europe to Turkey and Mediterranean markets widened as competitiveness of import cargoes from East of Suez was compromised.

2024 opened with soft macroeconomic drivers of oil consumption offsetting supply side pressures of geopolitical tensions in the Middle East.  Oil markets tightened into February and deepening fears of supply constraints firmed prices towards the 2023 full year average of US$82/bl.  Cost of petrochemical feedstocks sourced from the refinery followed crude oil prices, with naphtha prices firming about US$30 per ton through January and February.  A more balanced view of gas markets retained propane at a considerable discount to naphtha.  Gasoline realigned with firming naphtha prices after falling heavily in closing months of 2023.

Ethylene demand in Western Europe firmed as disruption to import cargoes led consumers to turn to domestic supply in the opening months of 2024.  A lack of confidence in the economic climate continued to heavily cap domestic demand and supply remained sufficient as cracker operating rates were gradually turned up.  Steady but weak markets aligned contract price settlements to firming upstream costs.  Cash margins of the standard naphtha cracker settled at lower end of range achieved since emerging from disruption of the COVID-19 pandemic.  Flexible crackers processing NGL gained considerable cost advantage as gas prices fell to a seven-month low.

Propylene markets in Western Europe firmed as derivative stocks were replenished, but slack consumer spending continued to sap domestic demand.  Contract prices tracked firming upstream costs, recognising fundamentally fragile domestic demand and lack of confidence in sustainability of volumes.  Renewed appetite for spot business narrowed heavy discounts offered in spot markets closing 2023.  Profitability of on purpose production at propane dehydrogenation units fell towards average achieved in second half of 2023 as margin gains to upstream cost reduction through closing months of 2023 were surrendered.  Lengthy petrochemical markets remained unable to bear higher value of propylene to the gasoline pool.

Butadiene demand in Western Europe firmed with disruption to shipping through the Red Sea and Suez promoting preference for domestic material to replenish low inventory closing 2023.  Short supplies of mixed C4 feedstock from steam crackers were more influential in tightening markets as slack consumer confidence continued to impede demand.  Butadiene production costs increased to a ten-month high by February as tight supplies of mixed C4 elevated feedstock costs ahead of a renewed upturn in naphtha values.  Firming costs elevated February contract prices to a seven-month high of €775 (US$858) per ton.  Fragile end use demand depressed cash margins to a two-year low, averaging US$165 per ton.

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Quarterly Business Analysis: Petrochemicals, Polymers and C1 Chemicals - Q1 2024

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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