European Ethylene market open July on a bullish note due to limited supply and high raw material prices

Germany, (Hamburg): Ethylene prices have rebounded across the European market during the first week of July in the wake of supply constraints, which alleviated the impact of tepid downstream demand in the regional market. Furthermore, a recent bullish rally in the upstream market has further supported the current pricing trend of Ethylene.

According to ChemAnalyst latest database, prices of Ethylene have showcased an increment of USD 10/MT in the German market. The feedstock Naphtha prices have increased followed by strong energy prices which resulted in the high production cost of Ethylene in the domestic market, leading to a bullish market sentiment of Ethylene among the manufacturers. Additionally, Brent crude oil prices have hit their highest level holding above $87 a barrel after the previous day showed a decline in the US inventories. On the other hand, European natural gas futures rose by about 2%, exceeding €33.5 per megawatt-hour. This bounce back follows a 4.3% decline last week and is attributed to supply risks from hot weather in Asia and a hurricane in Texas.

Despite ample gas inventories in Europe, global disruptions such as unplanned outages and heightened air conditioning demand are causing significant concerns. Moreover, increased energy prices have raised the overall production costs of Ethylene within the domestic market.

Moreover, domestic operating rates have not improved yet in the backdrop of weak demand dynamics. Also, Ethylene cracker margins went down week-on-week on the back of firmer feedstock cost. On the other hand, Germany's Manufacturing Purchasing Manager Index was little changed at 43.5 in June, compared with the previous month, reflecting a contraction in both output and new orders. Market player reported, curtailed output runs by domestic producers are further expected to affect the supplies of Ethylene. Meanwhile, import material shipments to the domestic market have witnessed a decline owing to freight rate spikes. Overall, the material availability was observed on the lower end, leading to an upward shift in the price realization of Ethylene in the German domestic market.

However, European Ethylene markets saw generally quiet trading activity, as demand from the downstream Polyethylene and Ethylene oxide industry remained consistently weak in the domestic market. The consumption from the plastic and packaging sector has slowed down, with market players gearing for the summer downturn amid seasonal holidays. Despite this, prices of Ethylene have been buoyant in the domestic market. Also, sentiments have deteriorated at companies in Germany. As per the market sources, the Ifo business climate index dropped by 89.3 points in May to 88.6 in June. Overall, the short supply conditions have exerted a significant effect on the Ethylene market.

In the short term, ChemAnalyst anticipates Ethylene prices might continue to rise in the European market in the hope of an increase in feedstock Naphtha prices. Moreover, the demand from the downstream derivative industry is not likely to improve in July but there is an anticipation that demand might pick up the pace in the second half of Q3. Additionally, the supply of Ethylene is likely to remain tight due to low domestic operating rates and reduced import offers from the Asian market.