Petrochemicals and Polymers: Quarter four performance

Asia Pacific

The Asia Pacific petrochemical market in Q4 2024 was marked by persistent challenges stemming from geopolitical uncertainties, fluctuating feedstock costs, and subdued downstream demand. These dynamics led to margin compression across multiple value chains, operational inefficiencies, and strategic adjustments by market participants.

Olefins markets, particularly ethylene and propylene, experienced significant margin erosion due to declining coproduct values in naphtha cracking and heightened competition from low-cost exporters. While ethylene prices remained relatively stable, cash margins for steam crackers declined by nearly 50 percent, compelling several producers in Southeast Asia, including Malaysia, Vietnam, and the Philippines, to curtail operations or implement temporary shutdowns. The propylene market faced additional headwinds from elevated propane feedstock costs and a persistent supply-demand imbalance, particularly in derivatives like polypropylene, where integrated margins continue to decline.

The aromatics sector, encompassing benzene, toluene, and xylenes, saw considerable pressure from oversupply and weak inter-regional demand. Benzene prices declined sharply, exacerbated by reduced export activity to key markets such as the United States and increasing imports into China. Paraxylene (PX) margins contracted significantly, primarily due to falling gasoline values, while downstream demand in polyester intermediates remained insufficient to offset supply-side pressures.

Demand for styrene monomer and polystyrene was constrained by macroeconomic weakness, particularly in China. Although lower benzene feedstock costs supported a modest improvement in styrene cash margins, profitability remained below variable cost breakeven for most producers. Polystyrene operations saw marginally better performance, driven by domestic consumption incentives in China and a resurgence in appliance exports.

The vinyls market continued to grapple with weak construction activity in China, resulting in sustained pressure on margins for products such as ethylene dichloride (EDC), vinyl chloride monomer (VCM), and polyvinyl chloride (PVC). While raw material costs declined, further price reductions left margins for both ethylene- and coal-based PVC producers significantly negative, highlighting the ongoing challenges in this segment.

The polyester and PET chains reflected the broader market dynamics of oversupply and constrained profitability. Although PET margins improved slightly early in the quarter due to anticipatory price increases linked to upstream cost trends, seasonal demand softness and high inventories eventually weighed on prices and margins. Integrated PTA/PET producers saw minimal gains, with sustained oversupply limiting opportunities for recovery.

Overall, Q4 2024 underscored the Asia Pacific petrochemical sector's ongoing struggle to navigate a highly competitive and volatile environment. Producers responded with strategic measures, including reduced production rates, selective asset shutdowns, and inventory rationalization, to mitigate financial pressures. These actions reflect the continued prioritization of operational efficiency and market adaptability in an increasingly challenging landscape.

United States

Petrochemical markets in United States firmed as a more optimistic view of the business environment emerged in underlying manufacturing industries alongside a long awaited cut to interest rates from historic highs.  Purchasing manager indices increased towards 50 and suggested activity had found a floor.  An upturn in automotive sales reduced vehicle inventories and manufacturing rates were moderately turned up.  Export business promoted firming demand as disruption to cargoes by adverse weather and industrial disputes suffered in previous quarters was less apparent approaching end of year.  Firming gas costs resisted steady downturn in crude oil and gasoline values that eased pressure on cost of petrochemical feedstocks sourced from the refinery.   Ethane costs leapt 30 percent from quarter three to settle at their highest for a year.  Propylene headed lengthening supply as reliable operation of propane dehydrogenation units was restored.  The NexantECA petrochemical and polymer profitability index dropped 25 percent and tested historic lows last found in second half of 2023.

Ethylene demand in the United States strengthened into quarter four alongside robust consumption into polyethylene which posted record highs in October.  Renewed export demand promoted steady domestic demand.  Inventories initially increased as production moved ahead of firming export demand.  Unplanned cracker outages allowed inventory to be drawn down towards the end of the year. Margins dropped alongside firming gas costs and the supply/demand for ethylene was not sufficiently robust to pass through incremental costs.  Falling co-product prices placed greater pressure on profitability of cracking heavier feeds and cracking ethane continued to offer lowest supply costs.  Higher ethane costs and firming demand alongside unplanned production losses led spot prices to increase sharply into December.  

Lengthening propylene supply in the United States eased tightness suffered to widespread supply disruption through the summer.  Reliable operation of propane dehydrogenation plants resumed and little interruption to production was heard.  Ample propylene supply plunged spot prices to an eighteen month low approaching the end of the year.  Competitiveness of propylene supply in United States improved considerably as premium over floor to regional prices defined in Asia relaxed to approach $100 per ton in October and November.  Profitability of propylene production in United States was squeezed between firming gas costs and steady downturn in value to derivatives.  Cash margins of propane dehydrogenation units suffered heaviest losses for two years as average margins through October and November slumped 40 percent to approach average of last decade.

Butadiene markets in the United States firmed as a lack of competitively priced imports shortened supply against steady demand.  Widening premium on Asian prices into 2024 drew import cargoes away from the United States.  Butadiene prices in the United States resisted hastening downturn in Asia towards end of year.  Resilient demand tightened markets as supply remained constrained by availability of C4 from steam crackers favouring lighter feedstocks.  Much lower gasoline values undermined value of raffinate-1 co-product and margins fell to historic lows as downturn in Asian prices depressed domestic prices against stable production costs.

Western Europe

Commodity petrochemical markets in Western Europe suffered prolonged slack demand as adverse economic climate choked domestic consumption and stalled prospects for recovery into 2025.  Supply lengthened as import cargoes backed out domestic supply favoured earlier in the year.  Cost of naphtha lagged steady downturn of crude oil prices and weak co-product markets compounded cost pressure on naphtha crackers.  The NexantECA petrochemical profitability index dropped fifty percent to approach the floor found in the closing quarter of 2023.

Demand for commodity petrochemicals in Western Europe remained depressed as stubborn weakness in regional economies choked consumption into derivatives.  Annual growth of Euro zone GDP settled near one percent in quarter three after languishing below this modest benchmark for two years.  Consumption was reluctant to recover after the summer holiday period and focus soon moved to year end stock management as prospects for recovery were pushed back into 2025.  The manufacturing industry in Germany suffered a broader downturn in business confidence.  Leading automotive manufacturer Volkswagen announced closure of at least three factories as elevated domestic production costs tested competitiveness against imports of lower cost electric vehicles.

Supply lengthened against consistently weak demand as scheduled maintenance turnarounds completed and supply lost to technical issues was less apparent.  Keen focus on inventory management heavily capped domestic production.  Moderation of global freight rates promoted competitiveness of import cargoes and risked backing out domestic material favoured in first half of year.  Widening acceptance of prolonged pressures on competitiveness of European material in oversupplied global markets prompted announcement of further cracker closures.  Planned closure of Versalis Brindisi and Priolo crackers extended recently announced cuts of ethylene capacity towards ten percent of European ethylene capacity.

Average Brent crude oil prices eased US$4/bbl from quarter three to settle at a three year low averaging US$76/bbl in October and November.  Downside risk to demand of softer economic climate headed by China outweighed periodic upside risk to supply of significant geo-political events concentrated in Middle East.  Cost of petrochemical feedstocks sourced from the refinery lagged easing crude oil prices as weak petrochemical demand had previously depressed naphtha values.  Seasonal heating demand narrowed cost competitiveness of LPG relative to naphtha.  The demand led downturn in crude oil prices offered little relief to refinery margins which settled at lower end of range achieved over last three years.

European ethylene markets weakened as hopes for a recovery in demand before the end of the year faded alongside fragile growth in regional economies.  Cost competitiveness of European material was tested as weakening co-product revenue displaced upstream cost savings in naphtha.  Imports of ethylene and derivatives lengthened supply as freight costs moderated.  Margins of standard naphtha crackers dropped more than US$100 per ton and approached floor found opening the year.

Slack demand deepened weakness in European propylene markets as consistently delicate economic growth curtailed consumption into polypropylene and principal derivatives.  Widening reports of capacity rationalization confirmed consensus view of lengthy supply.  Production costs beyond the refinery resisted downturn in crude oil prices.  Margins of on-purpose supply from propane dehydrogenation units tested a four year low as cost advantage of propane relative to naphtha narrowed into the winter season.

Risk of bottleneck in C4 supply balanced butadiene markets against tepid demand as crackers focused on inventory management.  Steady production costs retained 50 percent uplift built in first half of the year as weakening co-product revenue for raffinate-1 countered easing cost of mixed C4.  Weak demand and elevated costs squeezed cash margins below US$100 per ton to settle at a three year low.

Polymer demand in Western Europe remained frail as prominent focus on inventory reduction muted seasonal upturn in packaging applications.  Resin prices fell to lowest of the year as widening availability of import cargoes tested competitiveness of domestic supply.  Margin gains to easing upstream costs through first three quarters faded and profitability of integrated polyolefin units approached historic lows.

Moderating value of gasoline blending opportunities for toluene and xylenes capped prices in petrochemical markets.  Relative strength in petrochemical markets retained a premium in benzene prices over toluene and xylenes alongside downturn in gasoline values since February.  A deepening downturn of gasoline values narrowed premium earned over naphtha in consistently weak petrochemical markets.  Margins for integrated aromatics complexes fell heavily and reflected weakness in petrochemical markets as reformer margins fell to a three year low and realigned with average ahead of sharp margin peak built in 2022.

Closure of the Indorama integrated PTA/PET complex in Rotterdam offered little relief to European markets and slack seasonal demand promptly returned weakness to markets towards the end of the year.  Competitiveness of domestic production was increasingly challenged by production of PET from PTA imported into neighbouring markets in Turkey and Egypt.  The lower cost base established alongside downturn in gasoline failed to revive competitiveness of remaining domestic producers.  Potential shutdown of the one million tons per year INEOS PTA unit at Geel following emissions of Cobalt risk devastating domestic markets as the principal source of supply into merchant markets.

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Quarterly Business Analysis: Petrochemicals, Polymers and C1 Chemicals - Q4 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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