The propylene swing relative to ethylene in the US, as shown in the graph below is extraordinary. As we discussed yesterday it is a typical, albeit, tightly compacted commodity cycle, with the desperate shortage finding the incremental buyer who was more concerned about volume than price and the rapid supply and demand response that followed the peak in propylene pricing to correct the imbalance. The current price relative to ethylene does not look stable either and we would expect a reversal quite quickly – incremental propylene production from PDH is based on a higher cost feedstock than ethylene today – propane prices are higher than ethane prices, and while the volatility may remain in the relative price, we would expect to see propylene pricing rise back above ethylene again, fairly quickly. If polypropylene prices follow propylene and start to reflect a discount to polyethylene, that could also drive some polymer switching at the margin, which would help propylene relative to ethylene.
Source: Bloomberg, C-MACC, April 2021
Still, the last few data points above are quite startling and show just how much of an impact some immediate supply chain wobbles can have on pricing.
The risk for ethylene in the US is that prices would have to collapse also from current levels to generate an export arbitrage and restart ethylene exports. On paper (absent the supply chain issues, the freeze-related shutdowns, and the strong domestic demand for derivatives), the US is net long ethylene and at some point, we would expect pricing to reflect and need to start exporting again.
