As we hinted in yesterday's report, the wheels are wobbling in the US market, especially for polyolefins and this comes at a time when Asia prices are finding some strength because of production and cost issues – it shows how quickly market dynamics can change in this industry and the closing of the gap between Asia and US propylene prices in the first exhibit below is perhaps the most dramatic example. We see a real opportunity for the wheels to stop wobbling and completely fall of the western wagons in the near term, and as the second exhibit below shows propylene continues lower, and with further to fall to hit PDH economics.
Source: Bloomberg, C-MACC Analysis, October 2021
Ethylene spot pricing is marginally more stable, but this is likely because prices have hit a level that should create export demand. There are customers in Asia that are short of ethylene and the arbitrage works today. With rising ethane prices in the US and negative margins using propane feed, there is not much money to be made exporting, but it is still a profitable move. Oil would need to fall relative to US ethane for the opportunity to export to go away, but there is still some margin left in ethylene production and prices could go lower to attract more business.
Source: Bloomberg, C-MACC Analysis, October 2021
