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Bullishness in Asian ethylene market likely to ease in H1 2017

Global Ethylene Outlook

By Fumiko Dobashi

Bullish sentiment in the Asian ethylene market will likely ease in the first half of 2017, as the tightness in supply tones down with fewer steam cracker turnarounds for the year compared to 2016, market sources said.

The market was fueled by a supply crunch amid heavy steam cracker turnarounds in 2016 in Northeast Asia.

According to the Japan Petrochemical Industry Association, or JPCA, Japan's ethylene production amounted to 4.627 million mt for January to September, sliding 9.3% from a year earlier.

In 2016, seven steam crackers out of a total of 13 in Japan were shut.

The total ethylene production capacity taken offline was 3.6 million mt/year, including Asahi Kasei's 470,000 mt/year steam cracker in Mizushima -- which was mothballed in February.

The seven steam crackers represent 51% of the country's total ethylene production capacity.

In South Korea, three steam crackers out of a total of 11 were shut for annual maintenance in 2016.

The three steam crackers have a total ethylene production capacity of 2.24 million mt/year, or 32% of the country's total of 6.979 million mt/year.

As a result of tight ethylene supply, the CFR Northeast Asia ethylene price climbed up to $1,200/mt on April 8, the highest level since July 15, 2015, when the price was assessed at $1,205/mt.

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The price spread between ethylene and naphtha also rose to $832/mt on April 5 this year, the highest level since June 30, 2015, when the spread was calculated at $842.50/mt. The typical breakeven level is $350/mt.

Strong demand for spot ethylene cargoes from styrene monomer producers in China and ethylene end-users in Japan also boosted the Asian ethylene market.

Spot ethylene demand from styrene monomer producers in China was more than healthy in 2016, in line with startups of new styrene plants there.

According to S&P Global Platts data, the CFR China styrene monomer marker hit a seven-month high of $1,153/mt on March 7, 2016, while the styrene monomer margin climbed to a 10-month high of $171.30/mt on March 3.

Japan's ethylene imports also increased in 2016, in order to cover the production shortfall following the permanent shutdown of Asahi Kasei's steam cracker in Mizushima in February.

According to data from the Ministry of Finance, Japan's ethylene imports amounted 101,890 mt for January to September last year, significantly higher than 6,901 mt imported in entire 2015.

The Ministry of Finance data also showed Japan's ethylene exports dropped significantly in 2016.

Japan's ethylene exports for January to September amounted to 275,766 mt, marking a 61.4% drop from the same period a year earlier.

But in 2017, the same extent of supply tightness is not expected on fewer steam cracker turnarounds.

In Japan, four steam crackers out of 12 are scheduled to be shut in 2017 for annual maintenance.

The combined ethylene production capacity of the four steam crackers is 1.47 million mt/year, or 23% of Japan's total.

In South Korea, two steam crackers with a total capacity of 670,000 mt/year, or 8% of the country's total production capacity is due to be shut in 2017 for maintenance.

During that period, South Korea's KPIC plans to increase its ethylene production capacity to 800,000 mt/year from 470,000 mt/year.

Market participants also expect deepsea supplies from Saudi Arabia and the US to continue to flow into Asia.

Saudi Arabia's PetroRabigh has delayed the startup of a new polyethylene plant to the first quarter of 2017 from 2016.

Ethylene exports from the US also increased last year, with the volume hitting 111,348 mt for January to July, marking a 76.6% spike from the same period a year earlier.

The Asian ethylene market had already started to lose some strength in the fourth quarter of 2016, hit by rising deepsea supplies.

On October 18, the CFR Northeast Asia ethylene price was assessed at a two-month low of $1,050/mt.

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