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June 19, 2024Global Ethylene Market Snapshot
The ethylene market continued to buckle under heavy capacity addition and relatively weak demand growth in 2023. While the outlook is for a mild recovery in demand in 2024, the operating rate outlook is essentially flat, which will mean limited scope for demand growth in the most embattled regions. The United States and Middle East cash cost of integrated ethylene/polyethylene production remained at around half of the level of naphtha cracking complexes in Europe and Asia. The delta increased in quarter one of 2024, and the fight-to-the-death for market share continues. Some weaker producers in Europe and Asia have been making unsustainable losses since 2022 and expected to be forced out of the market, conceding their share of ethylene consumption to new market entrants in China, and the advantaged NGL-based exporters.
The polyethylene industry remains the main driver of ethylene demand, driven to a large extent by outperforming other materials in the packaging industry, but also inviting more negative attention due to its prevalence and the volume of plastic waste produced. Recycling and circularity have been accepted as the solution in some regions despite the higher cost and dubious environmental gain over energy recovery. Major growth in recycling is however envisaged by some governments, with taxes on materials such as plastics funding employment and investment along the recycling value chain. Others and particularly developing regions look to energy recovery as an effective and affordable solution to their mounting waste problems. Pyrolysis and the resulting circular feedstock are gaining traction particularly in Europe and the United States. Mechanical recycling of polyethylene reduces ethylene consumption, as will solvolysis-type chemical recycling techniques if commercialised at scale. Pyrolysis will impact on demand for conventional fossil hydrocarbons, but not on demand for ethylene.
The impact from environmental legislation does not look likely to be catastrophic for the industry. Following an unprecedented action to control the use of plastics in packaging in India, the market continues to grow, and the main effect seems to have been to force the closure of some smaller converters and allow the larger ones to grow in their place. In regions such as the EU, legislation will increase recycling and circularity. The EU €800 per ton levy on plastics consumed in packaging is currently paid by national governments, and Spain was the first country to pass through a proportion of the duty (€450 per ton) onto consumers from the beginning of 2022. Other countries are still considering their approaches. The tax is not sufficient to significantly disadvantage polyethylene-based packing systems relative to other materials, although it can be a contributory factor in the switch to materials such as PLA which are produced from renewable materials and are less persistent in the environment.
Many polyethylene products will however remain impossible to recycle economically, and there are no viable substitutes. Mechanical recycling can generally only process clean post-industrial plastic waste into circular applications, and post-consumer plastic waste into downcycled applications such as refuse sacks. Chemical recycling processes are generally high cost but promise virgin-like quality from zero or negative value post-consumer waste. PureCycle is building plants for chemical recycling of polypropylene in the United States and partnering others in Asia. APK plants to start construction of its first commercial scale “NewCycling” plant using its solvent based process to produce transparent LDPE from post-consumer waste. Beyond chemical recycling, there are scores of different technologies being developed to recycle plastics back to basic hydrocarbons, ranging from synthetic crude to steam cracker feedstock and some higher-value fractions like paraffin waxes. These provide alternative olefin feedstocks, but do not impact on consumption as chemical and mechanical recycling does. This technology is proving extremely difficult to commercialise however, and even pyrolysis processes are still sensitive to feedstock quality. The required sorting, washing and technological advancements required to broaden the scope of waste which can be directed away from energy recovery will therefore underpin prices at high levels.
While taxes on virgin plastics and indeed recycled products that are priced higher than virgin may be viable in wealthy regions such as Europe, this will not always be possible in the poorer regions of the world that are responsible for the great majority of marine plastics pollution. As many of these regions have energy deficits, the use of plastics as fuel for power generation and developing capacity for recycling plastics to fuels could be the quickest way of giving value to post-consumer plastics that are currently dumped into waterways. Tax breaks for such recovered hydrocarbons or plastics derived from them have yet to be granted in Europe, and it remains unclear whether or not they will be granted anywhere.
After a drop of five percent in 2022, global ethylene operating rates fell by a further three percent in 2023 as capacity addition continued in excess of ten million tons per year, while demand growth also remained moribund at one percent. Capacity addition will be significantly lower over 2024-2025 but will then accelerate in 2026-2027 as more new capacity enters the market in China.
The heavy lineup of new crackers in China suggests ongoing losses for many operators, forcing closures or major changes in business models. U.S. ethylene exports could lead to some operators substituting their own production with U.S. imports. There is also expected to more ethane available for export in the medium term, motivating more plants to change out naphtha furnaces for new ethane-based units. Fully loaded cash cost with depreciation for U.S. ethane-based production was around US$450 per ton below Asian variable cost in early 2024, leaving plenty of scope to cover shipping costs to Asia. U.S. export terminal capacity is currently fully utilised, and additional capacity will allow for significantly more shipment to other regions.
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Market Analytics: Ethylene – 2023
This report provides analysis and forecasts to 2050 of supply and demand of the global ethylene market. This analysis identifies the issues shaping the ethylene industry as well as provide detailed demand breakdown by derivative, supply and net trade data for 40 countries.
Ethylene demand is segmented by Alkylate, EDC, EPDM, Ethylene Oxide, EVA, HDPE, LDPE, Linear Alpha Olefins, LLDPE, Polypropylene, Propylene, Styrene, VAM and Others.
About Us - NexantECA, the Energy and Chemicals Advisory company is the leading advisor to the energy, refining, and chemical industries. Our clientele ranges from major oil and chemical companies, governments, investors, and financial institutions to regulators, development agencies, and law firms. Using a combination of business and technical expertise, with deep and broad understanding of markets, technologies and economics, NexantECA provides solutions that our clients have relied upon for over 50 years.
