The charts below focus on ethylene and the significant decline in Asia prices, now to levels that suggest negative cash margins. While we may see some cutbacks in production, especially if ethylene from the US can be secured at prices that are even lower than we see in Asia today, most producers will run until they cannot cover variable costs, and given that some of the imbalance, in China especially, might be short term in nature, it is unlikely that we will see any drastic production decisions yet. While the capacity additions in China have been extreme, demand is subdued domestically as consumer spending has not returned to its pre-pandemic trend and the shipping and port problems are hindering export demand.
Source: Bloomberg, C-MACC Analysis, June 2021
Equally striking is the US ethylene price evolution over the last 6 months, which demonstrates the difference between an oversupplied US ethylene market and one that is more balance to tight. When the market is balanced, spot prices can move as high as the domestic derivative market can afford – 1Q 2021. When the market is oversupplied, the downside is significant as the next buyer is a terminal and a ship away. US spot ethylene prices have halved over the last few months as the need to export has reappeared.
Source: Bloomberg, C-MACC Analysis, June 2021