We are seeing some monomer price weakness in the US, despite the rising costs. For ethylene, this is likely because of increased supplies (new capacity and turnarounds ending) and all capacity to consume running at full rates, including the export terminals. There is plenty of margin in exporting ethylene today and US prices are not falling because they need to find another buyer internationally. We could see some opportunistic buying for inventory at these prices, especially if you believe that the conflict in Ukraine is not ending soon and also if you are concerned about more extreme weather as we move through the summer in the south of the US.
The upwards pressure on crude oil prices will likely drive propane prices much higher in the near term and this will significantly impact propane dehydrogenation (PDH) costs in the US and put further upward pressure on propylene prices and prices for propylene derivatives. Note in the exhibit below that US polymer prices are turning slightly more positive relative to Asia again. While some of this will be cost-based issues in the US, especially for polypropylene, higher freight rates (again) continue to make it difficult for producers in Asia to maintain attractive operating rates and make it harder to push prices higher to reflect what are now rapidly escalating costs. The oil moves today may result in more capacity closures in Asia, which should lead to better pricing, but as we noted in our Weekly on Monday (and likely more extreme today) outside of US ethane-based ethylene producers, no one is making money producing ethylene today. Prices are going higher.
We saw the stable to downward trends in both US ethylene and propylene spot prices reverse at the end of 2020, in part because of recovering demand post the initial wave of COVID, but also because of storm-related production constraints in October and early November. The weaker spot markets for both ethylene and propylene today reflect much stronger production for propylene (all PDH capacity running) and Hurricane Ida-related upsets that have left the monomer markets less badly impacted than derivatives. Something similar happened in 2020, especially for ethylene, but the backlog of derivative demand cause a step up in ethylene consumption when everything restarted. This could happen again, and we are earlier in the Hurricane season. See today's daily report for more.
Propylene prices are rising again in the US, in part because of the propane price increase discussed in today's daily, but also because of reduced availability from other sources. These higher prices maintain upward pressure on propylene derivative pricing and we have to question how markets will adapt to much higher propylene and derivative pricing than ethylene and derivatives. There are several areas of potential overlap, where ethylene derivatives could take share from propylene derivatives and if the price deltas remain high and users become convinced that this could be the norm, it is reasonable to expect that propylene demand growth slows incrementally and ethylene demand growth benefits. In the immediate term, some quick switches could happen, but just as propylene demand marched ahead in the 1990s and 2000s because investments were made to use propylene derivatives instead of ethylene derivatives, we could begin to see investment to reverse the process. This was an incremental process for propylene over decades and we would not expect to see anything less incremental in the other direction, but ultimately this could be good for the more focused US ethylene and derivative markets if it accelerates growth in onshore demand and decreases the reliance on exports.
The Enterprise Products propylene numbers are impressive when you considering that its PDH facility was closed for a significant portion of the quarter, and while this likely contributed to tightness in the market, the company could have made even more money in 2Q. The results show the clear tightness in the propylene market in the US and reflect the very strong momentum in propylene derivatives, which is broad-based although we have tended to focus on polypropylene in recent work. See more in today's daily report.