The US petrochemical production cost competitive advantage reflects a sharp decline at the feedstock level. Natural gas and natural gas liquids prices have risen faster than crude oil and Ex-US naphtha values since mid-1H21. In yesterday's report we identified the disconnect between propane and ethane pricing in the US. While both are high, propane is so high that it is now unprofitable to make ethylene from propane instead of just less profitable. The direction of the lines in the exhibit below shows the changing landscape clearly, and the only reason why the US chemical industry is so much more profitable than the markets in Asia is that chemical product prices are so robust, in part because of the high cost of freight between the regions.
Source: Bloomberg, C-MACC Analysis, October 2021
The very high cost of propane is driving the more limited imports into Asia as cracker feeds, and yet despite this, pricing remains very strong – with prices in the US up a further 10-12% last week (depending on location). Given high natural gas prices, there is likely some speculation around heating needs in the US in the winter. Still, the demand for propylene production is high, and propylene pricing is high enough to pay the high price for feedstock. Multiple forecasters of LPG prices have been calling for a fall in propane pricing for months, and the forward curve has reflected that for most of the year – so far they have all been wrong. See more in today's report.