Global Ethylene production rates sinks amidst soaring crude oil prices

Ethylene production rates in the APAC region have been slashed by refineries that use Naphtha as cracker feed owing to high crude oil prices since the last week of February. Crude oil price rose to its highest value since June of FY 2008 during the late February- early March period. Refineries dependent on Naphtha as cracker feed were forced to cut down production rates as high Naphtha prices rendered the refining costs unfeasible.

The FD North-West Europe benchmark price of Ethylene rose by 32% from February 24th, 22 to March 17th, 22 while the benchmark price of Ethylene in Northeast Asia and Southeast Asia on a CFR basis were up by 3% and 5.7% respectively. Most of the naphtha-based crackers in the Asia Pacific region have been running on negative cash margins vis-à-vis Ethylene and Propylene production since late January.

The US on the other hand had seen a reverse trend characterised by better cracker margins as most refineries use ethane derived from shale gas as cracker feed. Spot ethylene prices declined since Feb 25th, 22 by 21% to stand at USD 645/MT as of 16th March 22 as the henry hub benchmark price of Natural gas eased up relative to the month of February.

The current scenario does not augur well for the downstream derivatives market including polyethylene, Polyethylene Terephthalate and Ethylene Vinyl Acetate markets which have already been reeling under higher cost pressure from surging Ethylene monomer prices and inflated raw material costs amid war fuelled demand surge. Although crude oil prices softened in the third week of March, prices could see a rise during the late March to early April period when the geopolitical situation in eastern Europe could aggravate once again as per many foreign policy think tanks.