European Ethylene Prices Show Bearish Trend in Late November Amid Dull Downstream Demand

Ethylene prices have been dragged down across the European market during the last week of November 2023, and market participants speculate further decline in Ethylene prices. The combination of lethargic demand and high inventory level has weighed down the prices of Ethylene in the regional market. However, upstream prices have started to gain pace, but it was insufficient to drive the price realizations of Ethylene at the higher side in the regional market.

After witnessing a bullish rally in the prior weeks, Ethylene prices have declined by USD 10/MT in the German market. The demand for Ethylene from the downstream Polyethylene industry has remained subdued since the beginning of Q4. The consumption of polyethylene from the end-users, such as the plastic and packaging sector, has not improved yet amid the challenging economic conditions, leading to bearish market sentiments about Ethylene among manufacturers. In the meantime, procurements from other derivative industries like Ethylene oxide have also struggled to recover due to weak buying appetite among consumers. Furthermore, market participants reported that German Ethylene producers have been suffering from poor margins and current costs, which may cause them to limit the price of Ethylene in the coming weeks.

However, on the upstream front, international crude oil prices have increased as OPEC+ considered additional output cuts of up to 1 million barrels per day. As per the sources, Brent crude oil was trading at $82.99, up 1.60% for a $ 1.31 per barrel gain, which positively raised the manufacturing cost of feedstock Naphtha. However, market players reported that the rise in feedstock Naphtha prices has a limited bearing on the prices of Ethylene within the domestic market. Overall, lukewarm demand has dominated the Ethylene market. As a ripple effect, prices of Ethylene FD Hamburg were settled at USD 770/MT during the week ending 24th November 2023.

In addition, the manufacturing firms have still run at lower rates (i.e., 60-70%) due to weak consumption from the downstream industries, and it is expected that operating rates may remain low till Q1 of 2024. In addition, the German manufacturing Purchasing Manager Index remained in the contraction during November 2023, indicating a deterioration in industrial and manufacturing activity. On the supply side, the availability of finished stock of Ethylene was adequate to cater to overall downstream demand, which supported the prices to follow a downtrend in the domestic market.

Apart from sluggish downstream demand and comfortable supply, Eurozone inflation continued to drop closer to the European Central Bank's (ECB) target. According to flash data released by the EU's statistics agency Eurostat, annual inflation is expected to decline to 2.4% in November, down from 2.9% in October, which might improve consumers' purchasing power in the forthcoming weeks.

As per ChemAnalyst estimation, European Ethylene prices are anticipated to decline in December 2023 as demand from the downstream industry is not likely to improve ahead of the holidays. Market players signaled that the deteriorating demand outlook will accelerate destocking activity towards the year-end.