Petrochemicals and Polymers: Quarter three performance

Asia Pacific 

Prices in quarter three of 2024 remained relatively stable with subtle movements recorded in commodities such as ethylene, propylene, vinyl and styrene. The ethylene chain in Asia largely recorded a decline in prices while propylene chain saw an uptick in prices, although changes are all very subtle. 

Despite an upward price trend in July and August, ethylene prices averaged lower on quarter two, shifting margins lower except for coal operations.  The industry remained in a supply glut from massive additions of liquid-based steam cracker complexes with real concerns surrounding the massively negative margins key derivatives which has seen overbuilt capacity in Asia. Integrated polyolefin margins in China continued to be below variable cost since quarter four of 2023. Heavily supplied Asian propylene market shows similar trend in this quarter with margin squeezed as operators were unable to pass on the higher propane costs. Integrated PDH/polypropylene returns somewhere between variable cost and cash cost.  Polypropylene in China remained relatively stable as slack demand was countered by maintenance turnarounds.  

Vinyls market in Asia Pacific were relatively good with prices tick higher for products across the board. Higher prices and lower ethylene prices allowed margins to recover for EDC and VCM producers in the region. Coal-based VCM operations also see their margin improved averaging about US$59 dollars above variable cost. However, due to the sluggish housing industry in China despite a series of policy measures and financial support implemented by the government, PVC margin continued to narrow as producers find it difficult to pass on the higher production cost. 

Benzene prices in China tracked global trend, sliding by about US$44 per ton in the quarter as production plants resumed from turnarounds and new capacities were added. Resumption of key downstream operations such as styrene and phenol allowed benzene price to recover in August.  Despite chemical and gasoline blending value gap for MX in Asia being narrower than other regions, MX prices are still driven by gasoline blending value currently.  PX-MX spread widens after a squeeze in quarter two. 

Subtle downward trend was seen in the styrene with margins improvement seen in operations buying feedstocks. Weak economic conditions persisted in China and demand remained relatively soft despite attempts to bolster demand by the Chinese government. The biggest stimulus package since 2017 were offered to revive the property sector and incentives were also offered for car buyers. Despite the effort, demand remain muted, and styrene oversupplied.  

Propylene derivatives mostly saw improved margins except for acrylonitrile.  Acrylonitrile market in Asia declined and average prices decreased 4.2 percent to where they opened the year.  Producers in China were running at a lower-than-expected operating rate, with major producers plans turnaround amid weak market. BPA prices in Asia remain relatively stable as demand remained constrained due to muted demand from the construction sector caused by the heavy downturn of the housing market in China. The growth in the automotive market supported the demand for polycarbonate sand propylene oxide. The industry has exhibited moderate growth since the start of the year. However, car sales in China decline in at the end of the second quarter and production was also recorded at a lower level in July. Polycarbonate and POSM operations remained severely below cash cost margins. 

Asian PET profitability improved slightly despite lower prices, although changes are very small and the industry remains chronically oversupplied with production from purchased raw materials remaining below variable cost. Prices recovered in quarter 3 to levels just sufficient to cover leader integrated PTA/PET variable cost, reflecting market leaders pricing at a level that would force out higher cost operations. 

United States

A steep drop in ethane prices into quarter widened cost advantaged position of ethylene production in the United States.  Seasonal demand for gas in power sector outpaced steady growth in demand for petrochemical feedstock leaving a surplus of ethane and prices tumbled more than 20 percent into quarter three.  Markets tightened as an active hurricane season disrupted production, impeding normalisation of supply from technical issues.  Supplies of base petrochemicals became a bottleneck promoting a strong upturn in profitability and prices.  Fragile global markets and cautious domestic demand heavily capped derivative prices and margin gains earned upstream were often surrendered to intermediates and derivatives.  Average industry profitability firmed slightly, recovering modest losses surrendered into first half of year. 

Ethylene markets in the United States strengthened in quarter three as outages at key crackers pinched supply against firming demand.  The feedstock cost burden of propane and butane crackers increased in quarter three, while naphtha was essentially flat.  Ethane crackers realised considerable cost savings, dropping 20 percent in July to deliver a cost saving of $40 per ton in quarter three.  Ethane cracker cash margins climbed to the highest for three years averaging $480 per ton through July and August.  Cracker margins increased significantly across all feedstocks as ethylene contract prices increased to a two year on short supply. 

Technical issues at propane dehydrogenation units tightened propylene markets in the United States as demand firmed into the second half of 2023.  Firming naphtha and propane prices provided secondary support to prices, but market pressures were the primary driver of considerable gains in contract prices.  Increased buying activity alongside Ongoing operational issues at PDH plants added US$154 per ton across July and August settlements.  Margins for on purpose propylene production in the United States were significantly higher in quarter three as contract prices took their lead from tightening markets and gas prices offered limited cost pressure.  Supply lengthened into September as PDH plants ran without interruption from technical or weather-related events.   

Butadiene demand in the United States remained relatively steady as derivative margins remained strong in comparison to other regions.  The massive advantage on ethane cracking versus other feeds motivated flexible feed cracker operators to maximize light feed, further limiting domestic crude C4 supply.  Scarce supplies of mixed C4 retained cost pressure at extraction units and the falling value of raffinate-1 as gasoline values came off their seasonal peak deepened cost pressure as co-product revenue subsided.  Butadiene prices in the United States peaked in June as supply constraints were most acute.  Flat demand countered pressure on prices from shortening supply and contract settlements rolled over from July.  Butadiene extraction margins were depressed towards historic lows where C4 was purchased in spot CFR markets.   

Western Europe

Turbulent energy costs alongside further weakness in the economic climate retained a challenging operating environment for the European petrochemical industry.  Hopes for a brisk upturn in volumes through second half of year faded and weak demand was particularly apparent through the summer holiday period.  Naphtha resisted easing crude oil prices as gas prices firmed and propane offered little seasonal cost advantage.  The NexantECA petrochemical profitability index stagnated close to that achieved in the first half of the year.  Profitability remains thin, settling close to that suffered in previous downturns over the last decade.  

Demand for commodity petrochemicals in Western Europe remained slow opening quarter as fragile economic growth persisted.  Annual growth of Euro zone GDP stagnated at 0.5 percent in first half of 2024.  Weak manufacturing industry sentiment promoted extended shutdowns through the summer holiday season as prospects for a recovery were pushed back.  offtake to all key industry sectors vulnerable to depressed economic sentiment.  New car registrations in the European Union grew just 0.1% on the year in July.  Slowing activity in the construction sector in Germany offered little support throughout the summer. Supply shortened alongside subdued demand as operating rates remained turned down in response to slack demand and cost pressures.  Production issues in United States, Middle East and Asia impeded building import cargoes and elevated fright costs and congestion further disrupted shipments.  

Average Brent crude oil prices through July and August at US$78 per bbl eased just US$1/bbl form the average in the first half of the year.  Deepening political tensions in the Middle East and contrasting views on development of economic climate magnified volatility in energy markets and an uncertain cost environment for petrochemicals downstream.  Brent crude prices testing an upper bound approaching US$90 per bbl in early June and a floor approaching US$70 per bbl opening September.  Gas prices showed a renewed upturn as imports of LNG were disrupted and stocks were assessed ahead of the winter.  Firming gas costs narrowed seasonal cost advantage in propane and resultant preference for naphtha as cracker feedstock strengthened naphtha values relative to crude oil.  

A disappointing economic climate retained weakness in European ethylene markets as upturn in petrochemical demand sought in second half of the year remained largely absent.  Shortening supply countered fragile demand as cracker operating rates remained turned down against firming costs.  A lack of seasonal cost advantage in propane alongside relative strength of gasoline led naphtha prices to lag downturn of crude oil prices into September.   Firming gas costs compounded feedstock cost burden of LPG crackers.  Naphtha cracker Margins fell ten percent from their quarter two peak but remain close to the average achieved over the last two years.  

Propylene markets in Western Europe suffered slack demand as repeated disappointment in the economic climate curtailed consumption into polypropylene and principal derivatives.  A lack of import cargoes offered some relief to slack demand as supplies shortened into August.  Firming feedstock costs into July depressed margins from the peak found as cost relaxed through quarter two.  Margins of on purpose supply from propane dehydrogenation units fell to lowest for a year, with little seasonal cost advantage in propane relative to naphtha.  

Butadiene demand in Western Europe remained weak as the fragile economic climate slowed automotive industry sales and production rates into second half of the year.  A deepening shortage of mixed C4 feedstock from steam crackers increasingly bottlenecked production, countering frail demand.  Production costs in August settled more than 80 percent above those in a similar upstream cost environment in January as mixed C4 feedstock costs escalated to a twenty five percent premium over naphtha.  Tepid demand heavily capped prices and margins slumped more than US$160 per ton as contract price settlements recovered less than 30 percent of the US$230 per ton increase in costs relative to quarter two. 

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Quarterly Business Analysis: Petrochemicals, Polymers and C1 Chemicals - Q3 2024

The Quarterly Business Analysis provides key insight into production economics for a broad range of commodity petrochemicals, polymers and C1 chemicals.  The analysis presents a review of costs, prices and margins for typical production assets, providing a valuable view of regional and value chain competitiveness and is is available for each key price setting region - Asia Pacific, Middle East, Western Europe and the United States.  A quarterly report provides insightful commentary to illustrate current trends, related to recent market developments.  The accompanying database is updated monthly.

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