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New Year Ahead - What to Expect from Olefins

January, 2019

The new year has come and we all are assessing what to expect from markets around the world. There has been too much price movement in the olefins, because of heavy movement in crude oil prices in 2018, and the market was little uncertain. Although some concerns from last year have stabilized, there has been emergence of new uncertainties making it difficult to assess the market trend. Here we have assessed some of the macro parameters to estimate the olefins market trends in coming year.

The US Market: 2018 has seen declining margins and tightening supply of olefins with decreasing market spread for crackers. The market is expected to change with upcoming capacities in coming years. Around 6 million tons of additional ethylene production capacity is expected to come in the US in 2019 alone. Some plants which started operations in late 2018, are also expected to add supply via gradual increase of operating rates. Coming polyethylene plants are expected to keep the ethylene price in check, while co-products of propylene and butadiene are expected ease relatively tighter supply soothing the prices and improving margins for polyolefin producers.

European Market: European Union witnessed relatively higher net exports in 2018, owing to the higher market disruptions with more exports directed towards Asian market. Relatively better margins for ethylene production and feedstock swing options for crackers helped them gaining advantageous situation. Some of the European players may benefit from the US-China war via discounts on LPG and ethane cargoes. The INEOS announcement of new ethane cracker in Scotland, came as surprise to European market which has been elusive of new capacity additions in last two decades owing to higher lucrative opportunities provided by the US and Asian markets. The expectations of lower crude price amid uncertainties of Iran sanctions impact, is expected to tighten the ethylene production spread. Further, scheduled outages for maintenance around May-June and October-November along with some unplanned technical failure caused outages may disrupt the supply supporting prices in coming year.

Asian Market: The largest Asian market of China has started showing signs of slowing growth. The ongoing Sino-US trade war has further worsened the conditions for the market. However, healthy demand growth expectations from India, Indonesia and other Asian markets is expected to keep the mood up for olefin downstream producers. Further, with expectations of stabilized lower crude oil prices are expected to return normalcy to the olefin and downstream producers, enabling them better feedstock management and higher margins. The biggest concern still looms around in China wherein the lower operating rates and new capacities provide interesting combination which is expected to stabilize in second half of the year.

Although, we have tried to assess maximum parameters to estimate market trends, the unforeseen scenarios may unfold giving way for unpredicted results. We shall have to track the market more closely for better understanding of the market so that informed decisions can be made.

– Ankur Kalra,
Manager – Chemicals & Materials,
Infoholic Research