US ethylene prices have bounced off a low this week largely, in our view on the steep rise in natural gas and ethane. The drop in ethylene prices over the last couple of weeks signals an imbalance whereby production is more than enough to satisfy domestic demand and export demand. Export demand is limited by terminal capacity, and we have seen some domestic demand issues for polyethylene, not because of demand weakness, but because of export logistic bottlenecks, that are resulting in product (with homes to go to) backing up in the US ports. Given the timing of this build-up, we may see some higher end-quarter working capital from some of the chemical companies with sizeable export footprints for 1Q 2022. The sharp increase in US natural gas prices and the catch up that ethane has made to natural gas, should keep some upward pressure on spot ethylene prices if gas prices remain high. Propylene remains very supported by high propane prices.
Source: Bloomberg, C-MACC Analysis, April 2022
With the production difficulties in Europe, the region is likely very open to imports from the US and other regions, especially if the imports are much cheaper than local costs, but logistics remain the major issue and make it challenging for the surpluses in China and other parts of Asia (for example) to make their way into Europe and increasing their cost. By contrast, there is limited opportunity for anyone to come to the rescue on ammonia-based fertilizers, given the very high European and Asian natural gas prices. Unless international gas prices fall, ammonia-based fertilizers will either be in short supply or prohibitively expensive or both and the natural follow on is for food pricing which will have to bear the cost of either much higher prices inputs or the cost of finding alternates. See today's daily report for more.