US ethylene prices resume Q4 surge

15:59 PM | January 18, 2021 | Clay Boswell

Inventories remain low amid strong derivative and export demand

Ethylene prices rose quickly in the US during the first week of 2021, resuming the surge of November and December. Supply has recovered from the hurricanes that struck the US Gulf Coast (USGC) in August and October, but strong demand into derivative production and monomer exports has kept inventories low, a situation that IHS Markit expects to persist.

Spot ethylene at the Choctaw, Louisiana, hub increased 38% from an opening price of 32 cents/lb on 4 January, to a closing price of 44 cents/lb on 8 January, according to assessments by OPIS, an IHS Markit company. The MtB-NOVA hub saw a 32% increase, and the MtB-EPC hub, a 35% increase. These gains extend a trend that saw average weekly spot prices rise from 18.25 cents/lb, delivered pipeline USGC, as of 12 November, to 32.00 cents/lb as of 17 December—an increase of 75% (chart).

North American ethylene was fundamentally oversupplied in 2020. Nameplate capacity totaled 48.1 million metric tons/year (MMt/y), up 4 MMt/y from 2019, but demand, crippled by the COVID-19 pandemic, increased just 1 MMt to 39.4 MMt. However, the excess disappeared after Hurricane Laura struck Lake Charles, Louisiana, on 27 August, followed by Hurricane Delta on 9 October.

“The sharp curtailment of supply on the US Gulf Coast in the third quarter from weather-related shutdowns, combined with prolonged outages, sharply pulled down inventories below five-year average levels in the last quarter,” says IHS Markit’s North American Light Olefins—Monthly Market Report. “Ethylene units not impacted by planned or unplanned outages operated at higher rates. However, on the back of robust domestic and export demand of derivatives, open arbitrage for ethylene monomer, and new derivative plant start-ups, there was no spare capacity to rebuild inventories in this last month or quarter.”

Steam crackers have been running hard to keep up, pushing the effective operating rate into the mid-90s during the third and fourth quarters, but with so much capacity offline, the nameplate operating rate fell to just 80% during the third quarter, lower even than the second quarter’s 84%, recovering to about 86% during the fourth quarter.

The shortfall in production had a clear effect on throughput at Enterprise Product Partners and Navigator’s new ethylene-export terminal at Morgan’s Point on the Houston Ship Channel. “The initial demand for ethylene exports from our Marine Export Terminal continued apace into July and the first half of August, including a world record for the largest ethylene cargo ever loaded—20,000 metric tons on Navigator Eclipse that was delivered to China,” Navigator said in its third-quarter financial results. However, export availability dried up as producers prepared for the arrival of Hurricane Laura. “This reduction in US domestic ethylene production led to US ethylene prices rising sharply due to reduced supply, much of which was consumed domestically with only limited volumes available for exports. Expected increased ethylene export volumes for September and October ... did not materialize.”

Spot ethylene export volumes reached a historic peak in July at 11 vessels totaling 99,200 metric tons, according to OPIS data. Only five vessels totaling 49,000 metric tons shipped in August, three vessels totaling 42,000 metric tons in September, and three vessels totaling just 28,000 metric tons in October. As production returned during the fourth quarter, spot ethylene exports increased to six vessels totaling 60,000 metric tons in November and eight totaling 89,800 metric tons in December.

Export volumes have continued to rise since the start of 2021. As of 8 January, eight spot exports totaling 83,300 metric tons had been scheduled for January vessel-loading windows. The increased throughput is being supported by the installation of a new 30,000-metric ton refrigerated storage tank at the Morgan’s Point terminal that entered service in mid-December.

IHS Markit expects US ethylene exports to near 1 MMt this year, up from 500,000 metric tons in 2019. “It is one more outlet for a market that on paper has more ethylene production than demand,” says Steve Lewandowski, vice president/global olefins at IHS Markit. “So as long as the arbitrage is open, it helps North America/US clear ethylene to the global market. Prices are set by this arbitrage on monomer or cost plus a small premium, so in a lower oil environment, there’s not much support, while a higher energy price—pricier ethylene globally—gives some gain in margin. Demand I think is the biggest issue, then energy price and naphtha price.”

There are currently no other publicly announced ethylene-export projects underway on the USGC. Nova Chemicals and Sunoco Partners Marketing & Terminals began exploring a joint venture in March 2018, but the two companies were unable to agree on the terms of a partnership.

“On paper, I’m not sure another terminal is needed, with project list we have on the supply and demand sides of the equation,” says Lewandowski. “Never say never, and some logistics exist that could support this, but I’m not sure you can find base-loading shippers.”

A busy planned maintenance schedule will keep supply snug during the first half of 2021, and inventories will remain low until all crackers resume operations, says IHS Markit.

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