The easing of US base chemical spot pricing continues and has now spread, as expected to polymer grade propylene. Supply now appears to be back to levels that do not reflect weather-related interruptions and despite the very strong downstream demand in the US the inevitable monomer surpluses are appearing. The US is a net importer of benzene and consequently, we see a floor being reached pretty quickly here, and while propylene prices could drop much further, PDH economics will provide support, and with a higher propane price, that support will likely be much higher than the price support for ethylene.
Source: Bloomberg, C-MACC Analysis, June 2021
In our view, US ethylene is still looking for a buyer, and give the recent history of exports to Asia, and the “not big enough” incentive to ship, as suggested in the chart below from our Daily Report, there may be more downside to come. We highlighted last week that one of the risks of lower US ethylene prices would be a step down in Asia ethylene prices unless someone wants the material, and we are now seeing that. Ethylene margins are shrinking in Asia – see our Weekly from yesterday – but could still fall further, possibly forcing even lower spot US prices. Asia seems adequately supplied, but the US can still undercut Asia production costs if the gloves come off – as well as European costs.
Source: Bloomberg, C-MACC Analysis, June 2021