The price dynamic discussed in today's report and shown in the exhibit below looks unusual in a recent historic context and is unlikely to last very long, but it is worth noting that the recent history does not reflect the longer-term history.
Source: Bloomberg, C-MACC Analysis, April 2021
When there was much less of a difference between the cost of making ethylene from ethane versus naphtha and more heavy feedstock was in use in the US in particular, propylene was a by-product and in surplus and traded at a discount to ethylene, with the swing production coming from refineries and only if propylene was worth more as a chemical than it was in alkylate production. Cheaper propylene meant cheaper propylene derivatives and in part helped propylene demand to grow faster than ethylene demand, causing the relative balances to change and driving the significant PDH investment that we have seen over the last 10-12 years, especially as the US ethylene fleet moved to lighter feeds because of the shale based availability of NGLs. Propylene has now been more expensive than ethylene for more than a decade, and consequently, propylene derivatives have been more expensive to make than ethylene derivatives. It is possible that we could see relative growth swing the other way, especially if packagers want to simplify – more polyethylene and PET and less polypropylene?
