Hamburg, (Germany): The European Ethylene market is poised to conclude 2023 with a stronger sentiment, driven by increasing upstream values. However, market players report limited demand for Ethylene from the downstream polyEthylene and Ethylene oxide industry across the regional market due to a weak buying appetite among consumers. This limitation, however, has not been sufficient to drive Ethylene price realizations lower.

Throughout 2023, EU countries faced substantial challenges, including firm inflation, rising interest rates by the central bank, economic slowdown, elevated natural gas, and electricity prices against the backdrop of the energy crisis resulting from the Russia-Ukraine war. This crisis has impacted the prices of several commodities, including Ethylene. Moreover, it is expected that European chemical makers may face a challenging market again in 2024 as weak economic growth and oversupply weigh on the Ethylene market.

According to the latest ChemAnalyst database, Ethylene prices in the German market increased by USD 10/MT in the last week of December 2023. The rise in feedstock naphtha prices in the prior week has resulted in higher manufacturing costs of Ethylene across the domestic market, leading to bullish market sentiments among manufacturers. Additionally, the recent turmoil in the Red Sea has significantly raised global crude oil prices, putting subsequent pressure on downstream commodities, notably Ethylene. Furthermore, manufacturing firms have reduced their operating rates (i.e., 60-70%) to maintain the balance between supply and demand. Despite the low run rates, the level of finished Ethylene stock was adequate to cater to overall downstream demand by the end of Q3 2023.

On the other side of the coin, inquiries from the downstream polyEthylene industry have remained subdued as consumption from end-user packaging and the plastic industry has weakened amid off-season dullness. While demand for Ethylene from other derivative industries like Ethylene oxide has also been observed on the lighter side, it had minimal impact on Ethylene prices in the domestic market. As a ripple effect, prices of Ethylene FD Hamburg were settled at USD 750/MT during the week ending 29th December.

European olefins outlook for 2024: Another tough year in the stores

Looking ahead to 2024, the European olefins outlook appears challenging. Heading into Q1 2024, ChemAnalyst expects Ethylene prices to remain under pressure across the European market. Economic uncertainty and weak operating rates are expected to limit prospects for an Ethylene recovery in 2024. Demand for most olefins was weaker than expected in 2023 due to severe inventory destocking and dull demand. Although producers are seeing hopeful signs that demand may stabilize in the second half of Q1 2024, oversupply of Ethylene may continue to weigh on margins. Additionally, higher inflation, interest rates, and geopolitical tension present challenges and risks to olefin growth, including Ethylene, in the year ahead. Projected declines in feedstock naphtha prices may ease the manufacturing cost of Ethylene in the regional market. Furthermore, crude oil prices are anticipated to drop but are expected to rise after the first quarter of 2024.