The chart below focus on the ethylene cost curve and show that the US currently retains a distinct cost advantage despite escalating domestic feedstock costs. The current cost advantage in the US is sufficient to move ethylene derivatives into most markets profitably and while US spot prices for ethylene may not quite reflect the levels needed to stimulate exports today – US ethylene costs certainly do. The restart of the Nova unit in Louisiana may put some further downward on US ethylene prices but as we discussed yesterday, given the weather risks in 3Q it is an interesting dilemma today over whether you sell surplus ethylene or store it on the basis that spot prices will rise because of production outages – this time last year the “store it” decision would have been the right one as spot prices rose through 3Q.
Source: Bloomberg, C-MACC Analysis, July 2021
Despite the higher NGL prices in the US, the current global cost curve (the bars in Exhibit above) is as steep as we have seen recently. Part of this is due to the extremely high price of propylene in the US relative to the rest of the world, and especially Asia, and reflected in the unusual steepness in the naphtha-based cost curve – with US naphtha based margins close to those for ethane. Propane margins are penalized in the US by the very high cost of propane, despite the high propylene values. With ethylene plants starting up in Asia and restarting after maintenance, the near-term outlook is quite bleak for margins in the region and especially for the ethylene units that have been consuming imported propane, where costs have risen faster than naphtha based costs. See more in today's daily report.
