Asian ethylene market at five months high, but weak PE might limit the upside

The Asian ethylene market has been constantly firming up since the beginning of 2019 and this week, hit the highest levels since 9 October 2018. Stronger demand from Chinese styrene monomer operators and tightening supply as a result of cracker shutdowns are the main driver for the hike, sources said.

Data from CommoPlast suggests a $60/ton hike within this week alone, sending the ethylene costs to $1160/ton CFR Northeast Asia and $1060/ton CFR Southeast Asia. 

The emergency shutdown at South Korea’s Lotte Chemical 1.2 million tons/year cracker since last Thursday and the shutdown at Keiyo Ethylene’s 768,000 tons/year cracker curtailed some spot supply. In the meantime, demand in China is picking up as buyers return to make replenishment.

While the supports appear strong, sources are questioning the sustainability of the current trend citing the weakness in the downstream PE market. Import HDPE film to China has been recovering, but not quick enough to cope with the rising ethylene cost. At the time this report is published, the average import HDPE film based on CFR China term stands at around $1130/ton, which is $30/ton lower than ethylene prices. Theoretically, the HDPE film market in China is suffering a loss of $180/ton at the current ethylene level. 

“We are monitoring the market very closely. HDPE film prices might gain more ground if demand picks up in the coming week. This could ease the pressure on the ethylene cost,” a market source commented.

In fact, the number of deals for import HDPE film observed in China is getting better following a floppy start this week. Several transactions for Middle Eastern HDPE film are reported at $1135/ton CFR China today, the level that faced strong resistance in the pre-holiday period. More converters would resume working in the coming week, which might stimulate trading activities further.