Hamburg (Germany): Ethylene prices have risen across the European market during the third week of February 2024. Rising energy and feedstock prices, along with a total absence of Asia-origin shipments, have reinforced market sentiments for Ethylene in the region. However, demand from the downstream derivative industry has not yet recovered amid economic uncertainties, though it had a minimal impact on Ethylene prices. Overall, the market fundamentals of supply and demand remain weak. Additionally, market direction in the near term is unclear, caught between cost escalations on one hand and flat demand on the other.

Prices of Ethylene have substantially risen in the German market. Persistently increasing feedstock Naphtha prices have led to higher production costs for Ethylene, supporting an uptrend in domestic market prices. On the upstream front, international crude oil prices settled higher as geopolitical tensions in the Middle East Asia (MEA) offsets forecast availed by IEA (International Energy Agency) for declining demand. Brent crude oil prices settled at USD 82.35 per barrel with a weekly increment of 4.1% on February 16, 2024. The strong crude oil prices have escalated the overall production cost of Ethylene in the domestic market.

Additionally, market players report that material availability was observed to be low in the domestic market. Throughout the past quarter, operating rates of manufacturing firms remained under pressure amid subdued demand fundamentals from downstream industries. According to the Federal Statistics Office, industrial production in Germany eased by 3 percent in December 2023 compared to the same month in the previous year. Despite reduced production rates, manufacturing firms did not experience substantial supply-side pressures due to weak demand from downstream industries. Additionally, Germany's manufacturing Purchasing Manager Index slightly increased from 43.3 in December 2023 to 45.5 in January 2024, marking the highest reading since February. Despite remaining in contraction, the rate of decline in new orders slowed notably, reaching its weakest since April 2023, with export orders also falling to a lesser extent.

Meanwhile, imports from the Asian market have slowed down in German ports amid attacks in the Red Sea, leading to a tight supply of Ethylene in the German domestic market. Furthermore, freight charges have increased across major trade routes. According to the European Commissioner for the Economy, the cost of shipping goods from Asia to Europe increased by 400%, with transit times increasing by 10-15 days due to cargo diversion as a result of the attacks in the Red Sea.

However, demand for Ethylene from the downstream Polyethylene industry continues to remain weak as consumption from the packaging and plastic industry has been sluggish in the domestic market. Spot market transactions were mainly based on small orders. Additionally, Ethylene oxide market fundamentals also remained weak, facing downward pressure from weak derivative demand from the key glycol market. Nonetheless, this was insufficient to drive the price realization of Ethylene lower in the domestic market. As a ripple effect, prices of Ethylene FD Hamburg were settled at USD 850 per metric ton with a week-on-week increment of USD 60 per metric ton in the week ending February 16.

According to ChemAnalyst, European Ethylene prices might show stagnancy in the coming weeks. Demand from the downstream industry is not likely to increase in the near term. Feedstock along with energy prices might start to stabilize in the forthcoming weeks. Despite the Red Sea unrest, spot freight charges are anticipated to decrease due to weak global demand.