Texas (USA): Linear Alpha Olefin (LAO) prices remained bearish in December amidst weak demand, coupled with falling inflation in North America, Europe, and the Asia Pacific. Falling LAO prices in December continue to be a strong proxy for manufacturing, as manufacturing globally largely remained contracted, despite producer prices falling in many regions. The upstream Ethylene market remained bearish due to weak polyethylene demand, coupled with negative cost pressure due to natural gas destocking by Europe and the USA.

In North American markets, LAO prices remained bearish due to the contraction in manufacturing and a rapid fall in producer prices due to the deepening slowdown and demand sentiment in the industrial sector. The US is currently offsetting any reduction in the production of gas and crude by OPEC, leading to high volumes of output by the USA, amounting to 16 million bbl/day recorded in December 2023, turning the ethylene market further bearish. Interest rates in the US continue to remain high despite the US Federal Reserve signaling three rate cuts in FY24. LAO and upstream ethylene prices remained bearish, according to one market player, because retail and consumer demand continue to remain subdued, especially cosmetic demand, which failed to pick up despite Christmas holidays. Furthermore, LAO-derived surfactants and lubricating oil demand from the industrial sector remained subdued due to downturns, lower operating capacities due to adverse weather, coupled with lower export demand to Europe. With ExxonMobil adding new capacities in September 2023, LAO supply in the US deflated while imports from other suppliers declined. US LAO prices remained highly competitive in the global market on the back of cheap energy and feedstock volumes. ChemAnalyst’s analysis reveals that despite the US new capacity addition, LAO prices continue to remain inflated over pre-COVID levels due to high inventory costs previously incurred. The Brazilian and Mexican LAO market remained subdued due to weak manufacturing, high cost of energy, and US dumping of cheaper supply.

In Asian and European markets, prices remained subdued partially due to a seasonal slump added by the Red Sea crisis due to Houthi attacks. European suppliers are reducing their newer orders due to a shortage of shipping containers as shipping companies bypass the Suez and move towards South Africa, leading to larger lead times. SABIC and other major Red Sea players have been quoting lower prices to let the material flow continue to Northern Europe and the Mediterranean. European markets are facing logistical challenges at their ports in Rotterdam, Antwerp, etc., primarily due to heavy rains and flooding coupled with strong currents, reducing logistical supply and increasing lead times through inland waterways. European LAO markets are currently highly inflated. Inflation in Germany increased in December amidst increasing input costs and persisting cost pressure due to reliance on imports, especially from the Middle East and Asia, etc. Manufacturing in Europe and Asia remained subdued, reflected in weak LAO C10 market prices. Asian markets are facing oversupply despite a shortage of containers across the Asia-Northern Europe route, with Middle Eastern volumes finding their way into Chinese and other East Asian markets, while prices in India turned bullish amidst supply shortages, as shipping companies bypass Indian ports, forcing Indian procurement strategists to speculate on the prices.

The Red Sea crisis is currently unfolding, and ChemAnalyst predicts that LAO suppliers will have to pass on rising CIF charges to consumers in the coming months when demand sentiment is expected to pick up with consumer confidence turning more positive for FY24.