Hamburg (Germany): After witnessing a bearish rally in the past two weeks, Ethylene prices have gained upward momentum across the European market in the first week of May 2024, supported by high raw material prices. While producers failed to achieve margin expansions despite reduced supply and run rate cuts, more was needed to tip the scales in their favour amid weak downstream demand. According to ChemAnalyst's latest database, prices of Ethylene have increased by USD 20/MT in the German market.

The cost support from feedstock naphtha was sufficient for Ethylene as its price settled on the higher end in the domestic market, contributing to an upward shift in the price realization of Ethylene. On the other hand, following previous downswings, crude oil slid below and remained under the USD 90/bbl threshold.

However, Brent futures recorded an increase of nearly USD 1/bbl in the latest settlement, while the benchmark rose further to be quoted at USD 89.30/bbl at the time of writing. In addition, the reduced operating rates in Q1 2024 played an important role in the ongoing decline in Ethylene supply in the domestic market, paving the way for sellers to test the markets with hikes. Moreover, market sources report the German Manufacturing Purchasing Managers' Index improved and settled at 42.5 in April compared to the previous month.

The latest rise in the headline index was partially due to a slower decline in production, with output decreasing at the slowest pace. However, new orders saw a deeper fall at the beginning of the second quarter. Meanwhile, imports from the Asian market have also turned costly amid tighter supply as well as a rise in freight charges, resulting in the high imported prices of Ethylene within the domestic market.

According to market sources, freight charges from Asia to North Europe were settled at USD 4,000/FEU on May 3rd, following a week of adverse weather and congestion at Chinese ports. However, demand for Ethylene from the downstream polyethylene industry was limited, with most downstream converters purchasing to cover immediate requirements. Market players also report that spot market transactions were average, as the eagerness of terminal firms to enter the market was not strong.

Overall, high prices of raw materials have cut into their profit margins, leading to unhealthy buying enthusiasm. As a ripple effect, prices of Ethylene FD Hamburg were settled at USD 875/MT during the week ending 3rd May 2024.

Looking ahead, ChemAnalyst predicts European Ethylene prices might increase in the forthcoming weeks. Demand for Ethylene from the downstream polyethylene and Ethylene oxide industry is anticipated to rise but at a slower pace. In addition, feedstock naphtha prices are likely to increase along with a bullish forecast of oil prices, which would positively raise the production cost of Ethylene across the regional market. The supply of Ethylene will remain limited amid low operating rates, which might further escalate the prices of Ethylene.