Hamburg (Germany): After a period of stagnancy in the previous week, ethylene prices have rebounded across the European market in the third week of January 2024. The region experienced significant shipping disruptions due to the Red Sea unrest, resulting in soaring freight rates, equipment shortages, delivery delays, and longer lead times. Olefins, particularly ethylene, faced reduced availability from the exporting market, creating a "perfect storm" of challenges.

Despite subdued demand for ethylene from downstream derivative industries since the third quarter of 2023, driven by macroeconomic headwinds and dampened consumer buying sentiments, it was insufficient to drive ethylene prices lower in the regional market. Additionally, the European economy faced mild recession and high inflation, with prolonged disruptions of trade through the Red Sea potentially preventing central banks from cutting interest rates this year.

According to ChemAnalyst's latest database, ethylene prices in the German market have increased by USD 10/MT. Despite a rise in Brent crude oil prices, feedstock naphtha prices persistently declined due to weak demand from other end-user sectors, with minimal impact on domestic ethylene production. Low production activities pressured manufacturing firms' operating rates, resulting in limited availability of finished ethylene stock within the domestic market.

Europe, being both the producer and consumer of ethylene, experienced the impact of price fluctuations in the exporting market. Imports from the US and Asian markets became costly as prices increased in the exporting market, leading to high imported prices of ethylene in the German domestic market.

The Red Sea attacks on shipping threatened to create a chaotic period for German manufacturers as supply chains were disrupted. Rerouting of container ships away from the Suez Canal increased transit times and created supply shortages in the German market.

Despite tepid demand for ethylene from the downstream polyethylene and ethylene oxide industry, attributed to sluggish consumption ahead of the low-winter season, it had an insignificant impact on ethylene prices. Major producer BASF is expecting to undershoot its earnings and sales guidance for 2023 due to margin squeezes outpacing cost reduction savings.

Inadequate inventories dominated the ethylene market, leading to settled prices of USD 760/MT for ethylene FD Hamburg during the week ending January 19th. ChemAnalyst anticipates European ethylene prices to increase in the coming weeks due to expectations of limited inventories in the regional market. The strike at Deutsche Bahn (DB) Cargo starting on January 23, 2024, by train drivers' trade union Gewerkschaft Deutscher Lokomotivfuhrer (GDL), is expected to further contribute to logistics delays caused by the Red Sea ship attacks. Feedstock naphtha prices, however, may suffer from lower profit margins in 2024 as refining and petrochemical capacity expansions in China and the Middle East outpace global plastics demand growth.