Lukewarm Demand vs Limited Supply Puzzles European Ethylene sellers in August 2024

Ethylene prices extended their gains into the second straight week of August, with regular sellers seeking higher prices, citing the lingering logistic mishaps worldwide and unfavorable netbacks across the European market.

Prices of Ethylene have perceived an increment of USD 20/MT in the German market in the backdrop of constrained supplies. In the last few weeks, feedstock Naphtha prices have increased, resulting in the high production cost of Ethylene in the domestic market, contributing to a bullish market sentiment of Ethylene among the manufacturers. Furthermore, crude oil prices made a strong comeback last week, as participants regained a small fraction of the barrels, they had sold earlier due to the fears of an imminent economic recession in the United States, coupled with a substantial decline in export volumes to China. The price resurgence was further sustained by supply concerns amid mounting geopolitical tensions in the Middle East and decreasing inventory in the US.

On the other hand, the availability of Ethylene has tightened further on the back of reduced import volumes from the Asian market, stemming from the production cuts in the region. Moreover, freight rates from Asia to Europe have also been observed on the higher end amid the Red Sea crisis, keeping the import prices elevated. Moreover, restrained output rates in the domestic market have also weighed on the supply situation.  Thus, prices of Ethylene FD Hamburg were settled at USD 880/MT during the week ending 9th August 2024. Additionally, Ethylene producer Shell Chemicals Moerdijk in the Netherlands having a production capacity of 971,000 MT/year has shut down its Ethylene cracker amid maintenance turnarounds which will further impact the supply of Ethylene.

Even though, demand for Ethylene from the downstream Polyethylene industry has continued to remain weak as consumption from the key end-user plastic and packaging sector was slower than expected amid null season demand. At the same time, inquiries from the other downstream segments including Ethylene oxide have also been observed on the lower end due to weak buying trends among the end-users. Market participants reported that the spot market transactions were also flat, and several buyers remained on the sideline amidst sluggish downstream demand. However, a few market observers pointed to restocking activity ahead of the impending seasonal turnaround in the coming weeks. But overall, demand for Ethylene was typically subdued in the domestic market.

In the short term, ChemAnalyst speculates prices of Ethylene might remain firm across the European market in anticipation of a rise in feedstock Naphtha prices. In the coming weeks, demand for Ethylene is likely to increase in an effort to restock the inventories. Furthermore, the availability of Ethylene is expected to remain tight due to low import offers from the Asian market amid seasonal turnaround coupled with low domestic operating rates. However, in the long term, there is an anticipation that the supply of Ethylene may improve across the regional market.