Tightening Supply Underpin Ethylene Market in Europe

Hamburg, (Germany): Following a two-week period of stability, Ethylene prices unexpectedly increased across the European market during the fourth week of May 2024, supported by high raw material costs. Meanwhile, delayed shipments due to a lack of container availability and firmer import offers from overseas suppliers pulled prices higher in the region. However, demand from the downstream derivative industry has remained under pressure amid external headwinds. All eyes are now on June, with questions about whether the market will align with the global uptick or if the approaching holidays will dampen demand further, keeping prices on the weaker side.

Despite low crude oil prices, feedstock Naphtha prices have increased this week, resulting in higher production costs for Ethylene within the domestic market, contributing to an upward shift in Ethylene price realization. Furthermore, in the domestic market, operating rates have been average, currently around 70%-75%, and are expected to remain low until July. As a result, inventory levels were observed to be on the lower end in the domestic market. Meanwhile, import offers were also limited amid a severe shortage of containers and vessel space, as commercial ships are taking longer routes to avoid the Red Sea. This has sent freight rates skyrocketing in recent weeks, artificially propping up the prices of several commodities, including Ethylene, even as demand remained generally weak.

During the week ending 24th May, Ethylene prices were offered at USD 810/MT, with a week-on-week increment of USD 20/MT on an FD Hamburg basis.

On a positive note, a new Ethylene cracker is being built by INEOS in Belgium and PKN in Poland, with a capacity of 1.45 million MT/year of Ethylene, making it the largest olefin unit in Europe. The project resumed construction earlier this year after being stalled by a campaign by environmentalists, but INEOS has not changed the plant's announced completion date of 2026. Several market participants expect the supply of Ethylene might improve in the near term.

However, demand from the downstream Polyethylene industry has remained subdued as consumption from the plastic and packaging industry shows no sign of improvement in the domestic market. Additionally, consumers are refraining from buying in bulk quantities and are making need-based purchases. Market players report that producers of Ethylene face the conundrum of heated competition in response to waning downstream demand versus high production costs.

Looking ahead, ChemAnalyst expects European Ethylene prices to remain on the soft side, with slow derivative demand considered a key driver behind the bearish outlook, especially with an extended summer holiday lull. Despite the hike requests seen in other global outlets, European players did not find hike attempts feasible given the state of derivative demand and geopolitical tension. Furthermore, European petrochemical producers, including Ethylene manufacturers, are expected to face more negative margins as they grapple with weak demand. However, freight charges, as well as high upstream costs, might remain strong but may not provide leverage for the sellers' possible price hikes.