Petrochemicals and Polymers: Quarter two performance

Asia Pacific

Prices in quarter two of 2024 mainly recorded an uptick for major part of the chemical industry except for ethylene and EDC. Profitability for most of the market has improved stemming from lower feedstock cost and slightly better demand environment. 

Cracker profitability continues to improve in Q2 2024 especially for coal-to-olefin producers as coal prices continue to slide.  MTO operators on the other hand faced the opposite situation as merchant methanol prices increased.  There was a small but discernible increase in ethylene margins from most processes, but the market remained extremely distressed, with whatever positive margin achievable on ethylene itself conceded on derivatives.  The Asian propylene market recorded higher propylene and polypropylene prices despite falling propane prices.  However, South-East Asian propylene producer remained under pressure as propylene prices in the region slide. 

In the vinyl market, EDC prices declined pricing in the lower ethylene prices. EDC profitability remained relatively stable but has benefited the VCM and PVC producers in the region. Despite operating at below cash cost breakeven, VCM and PVC producers are seeing slightly better profitability in Q2 2024. 

Most propylene derivatives saw a thinner profitability in Q2 2024 despite higher prices recorded across the board. Higher propylene cost and lower operating rates have resulted in higher acrylonitrile and phenol prices in the region.  This trickles down to downstream plant such as BPA and PC which have all recorded a reduced margin in the quarter. Margins of propylene oxide plants remain severely below cash cost margins with POSM plants benefiting from higher returns from styrene. 

Despite operating well below cash cost margins throughout the styrenics chain, producers are seeing improvements in profitability this quarter due to improved monomer and polymer prices.  However, demand in the region remained soft as weak economic conditions persisted in China. Demand remained relatively soft despite attempts to bolster demand by the Chinese government.  Measures were introduced to revive the property sector, including the biggest stimulus package for the sector since 2017. However, buying interest remained relatively soft as fragile macroeconomic climate weighed on demand in end-use sectors including household appliances and packaging remained slow. 

Asian spot benzene prices continue to climb from January through to April 2024, tracking the trend of high benzene prices in the United States, as well as Brent oil prices. Tight supplies due to scheduled and unscheduled shutdowns have led to lower inventory levels in the region and supported the prices in the market in April and May.  Healthy derivatives demand firmed into  June. Mixed xylenes prices trended upward in the quarter supported by strengthening crude oil prices and gasoline blending demand. 

Polyester market remained weak with improvements seen in integrated PX producers in the region. MEG prices continue to decline after rallying early in the last quarter. The Asian MEG market remained in crisis, with losses extending further into quarter two.  The battle for market share has yet to result in significant exits, although with integrated naphtha cracker and MEG margins are well below variable costs margin.

United States

NGL feedstocks extracted from cost advantaged gas shielded producers in the United States from the steep escalation of crude oil prices into the second quarter.  Ethane prices remained stable, with increased export volumes matched by lengthening supply.  Propane and butane prices dropped more than 12 percent alongside lower gas costs and slowing seasonal heating demand.  Markets remained demand constrained, as stubbornly subdued domestic demand continued to impede any upturn to markets.  The NexantECA petrochemical and polymer profitability index remained broadly steady, preserving profitability close to the average achieved since margins tumbled into the second half of 2022. 

The petrochemical industry in the United States continues to battle prolonged weakness in domestic demand.  Consumer confidence improved moderately amidst hopes for a reduction of interest rates in the second half of the year.  Sentiment in the manufacturing sector remained more cautious, with concerns around stubbornly high inventories capping production rates.  Vehicle production rates in the United States slowed on the year in quarter two, in stark contrast to more favourable growth in sales figures.  Adverse weather muted seasonal upside to demand into the summer in sectors such as construction.  Similarly fragile export markets offered little relief for frequently cost advantaged material. 

Ethylene demand in the United States remained steady, capped by subdued demand for derivatives in both domestic and export markets.  Markets retained balance as maintenance activity, weather related disruption and unplanned technical issues periodically shortened supply.  Supply side pressure was more apparent into June following an unplanned outage at Shell’s Norco cracker, and downtime on the Lotte/Westlake cracker.  Ethylene prices in the United States firmed through April and by May, recovering modest losses surrendered through the opening months of the year.  Feedstock costs followed a similar trajectory but easing gas costs moderated the upturn in NGL prices.  The result was the highest margins on ethane cracking since the beginning of 2021.  Cash cost advantage for US Leader ethane crackers over Asia naphtha crackers remains over US$600 per ton. 

Propylene markets in the United States normalized, following an acute shortage of propylene in quarter one as the two of the largest propane dehydrogenation (PDH) units were halted for maintenance.  Refinery run rates increased into the summer, lengthening FCC propylene supply.  Polymer and chemical grade propylene prices fell swiftly alongside improved availability.  The steep drop in US propylene prices relative to stable price elsewhere favoured economics of export focused derivatives as domestic demand remained modest.  Refinery grade propylene prices eased at a much slower pace as gasoline values firmed into the summer season.  PDH margins remained, highly favourable relative to most other as competitive gas prices were reflected in lower propane costs.  Margins remain close to the average achieved over the last eight years despite dropping around US$100 per ton from quarter one.   

Butadiene markets in the United States strengthened into quarter two as supply shortened against resilient demand in domestic and export markets.  C4 yields remained capped relative to ethylene as cost advantaged gas continued to promote ethane cracking.  Severe weather planned maintenance led to lost domestic production.  Seasonal strength of gasoline drew C4 to selective hydrogenation.  Domestic contract prices followed lead of rapidly strengthening Asian prices, gaining more than US$500 per ton over first five months of the year.  Profitability of butadiene extraction in the United States was significantly higher in quarter two, although crude C4 sellers benefited most from increasing prices.

Western Europe

Elevated energy costs coupled with prolonged weakness in economic climate retained a challenging operating environment for the European petrochemical industry.  Caution amongst consumers and manufacturing industry continued to impede demand as interest rates remained historically high and GDP growth stubbornly slack.  A steady downturn in crude oil prices into May offered brief margin gains as costs relaxed ahead of revenue earned from contract prices set on monthly term.  Elevated freight costs and longer lead times for deliveries promoted demand for domestic material as import cargoes were drawn to higher price point in Europe.  The NexantECA petrochemical profitability index firmed for a third consecutive quarter, recovering heavy losses surrendered as the index tumbled to historic lows into the second half of 2023.   Profitability remains thin, realigning with that suffered in previous downturns over the last decade. 

Demand for commodity petrochemicals in Western Europe remains stubbornly slow, hampered by consistently fragile economic climate.  Annual growth of Euro zone GDP has averaged just 0.2 percent since second half of 2023 and interest rates remain at historic highs, with first cut for eight years delayed by the European Central bank until June.  Elevated energy costs compromised competitiveness of European material as crude oil prices escalated twenty percent to open quarter two at a six-month high.  Supply lengthened as planned maintenance turnarounds were completed and import cargoes were drawn to the premium offered in European prices.  Persistently challenging operating environment prompted further rationalisation of capacity as SABIC and ExxonMobil confirmed closure of two crackers accounting for four percent of ethylene capacity in Western Europe by year end. 

Deepening geopolitical tensions in the Middle East propelled Brent crude oil prices to a six-month high averaging US$90/bbl in April.  A widening risk premium promoted Brent crude oil prices 15 percent in the first four months of the year after finding a floor in December.  Crude prices were more exposed to weakening market signals as indications of slowing demand growth, coupled with increasing U.S. oil output and rising inventories weighed on prices.  Crude oil prices retreated below US$80/bbl in May, prompting OPEC to review their supply strategy again and Crude prices subsequently firmed into June.  Cost of petrochemical feedstocks sourced from the refinery followed the lead of crude oil prices, with naphtha prices rising to a seven-month high in April before dropping back through May. 

European ethylene markets retained weakness as a consistently fragile economic climate left demand stagnant.  Supply lengthened as import cargoes delayed in opening months of year arrived.  Ethylene production costs demonstrated inertia to volatile upstream costs as coproduct revenue resisted moderation of naphtha costs from a peak in early April.  Standard naphtha cracker cash cost settled at a ten-month low averaging US$690 per ton through April and May.  Profitability resisted persistently weak markets as cash margins increased US$170 per ton to approach average of last four years. 

Propylene markets in Western Europe weakened, with demand vulnerable to turbulent costs and extended weak economic climate.  Supply lengthened as import cargoes delayed by diversions from the Red Sea arrived, relaxing bottlenecks in supply chains.  Propylene contract prices increased to a twelvemonth high in the April Settlement at €1 145 (US$1 196) as naphtha costs escalated to a peak.  Profitability resisted deepening market pressures as upstream costs retreated abruptly into May.  Margins of propane dehydrogenation units climbed to upper end of range achieved over last eight years, buoyed by seasonal downturn in propane costs which opened a 25 percent discount to naphtha by May. 

Butadiene demand firmed as renewed cost competitiveness of European material promoted export opportunities.  Markets tightened as limited availability of mixed C4 from steam crackers increasingly bottlenecked production.  Butadiene production costs increased for a fourth consecutive quarter as short supply of mixed C4 feedstock resisted brisk reduction of upstream costs.  A widening premium on Asian prices coupled with firming costs propelled contract prices to a two year high in the June settlement at €1 100 per ton.  Profitability firmed towards upper end of the range achieved over last eight years, with cash margins revived above US$300 per ton.  

Find out more...

Quarterly Business Analysis: Petrochemicals, Polymers and C1 Chemicals - Q2 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.

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.