US ethylene and propylene production will continue to outpace demand through 2015 amid capacity expansions, a light turnaround schedule and limited export opportunities, as per Argus Media.
The ethylene market is well supplied even as demand for derivatives and exports are strong. Front-month spot ethylene in Mont Belvieu, Texas began the year trading at its high so far of 43¢/lb before falling as low as 33.25¢/lb 4 March after an outage on the Evangeline pipeline, which carried material between Texas and Louisiana, stranded production at Mont Belvieu. After the resumption of flows on the pipeline, ethylene rebounded modestly in the second quarter, to 35.5¢/lb by the end of June.
Additional production is likely to erode price support throughout the rest of the year. LyondellBasell’s 250mn lb/yr (113,000 t/yr) expansion in Channelview, Texas comes online in the third quarter. In Louisiana, where prices reached a 24.25¢/USG premium to Mont Belvieu 25 March, the resumption of operations at Williams’ newly expanded 1.95bn lb/yr Geismar cracker narrowed that differential to less than $2¢/lb by the end of June.
Ample supply across the region is adding stability to prices regardless of operational outages. During the second week of July, when Dow’s LHC-8 ethylene unit in Freeport, Texas was taken offline because of a leak. A second unit at the plant went down for maintenance days later, taking a total of 3.3bn lb/yr (9mn lb/d) of US capacity offline, spot ethylene prices rose only 0.5¢/lb to 35.5¢/lb on 9 July before retreating back below 35¢/lb the next week.
The oversupplied US market sought some relief from international buyers in the second quarter, as ethylene cargoes left the US for the first time in three years. Between April and July, approximately 70,000 tons of ethylene was exported, mostly to Asia. Another cargo is set to load in August and another is under discussion. However, arbitrages to both Europe and Asia are narrowing on higher operating rates in those regions. The spread between the US and Europe shrank from $680/ton in June to $517/ton in early July.
US propylene markets are similarly well supplied, as more cracking of cheap propane and butane, coupled with higher refinery utilization rates, continue to boost RGP and PGP production beyond domestic demand. Since the start of the year spot PGP prices at the US Gulf coast fell from 51.5¢/lb to 35.375¢/lb at the end of June, and tumbled further to 33.75¢/lb, the lowest levels all year, in mid-July. In the third quarter, the startup of Dow’s previously announced 1.65bn lb/yr (750,000 tpa) PDH unit in the third quarter will contribute to the supply overhang, further weakening prices. Terminal capacity constraints and waning arbitrage opportunities are limiting exports of propylene to higher-priced markets in Europe or Latin America. So far, 40,000 tons of propylene was fixed to Europe since export activity began in late April, doing little to alleviate the US supply glut.
US olefins supplies for 2015 appear robust
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