High ethylene prices in Asia have been keeping margins of most ethylene derivatives in the red, forcing some MEG and polyethylene makers to consider trimming operation rates or closing entire production lines, sources said this week.
In turn, the output decline could help reduce overinflated inventories and tighten availability, setting the stage for firmer spot prices going into April, sources said.
The ethylene spot price was assessed at $1,515/mt CFR China Friday, $55/mt below 5.5-year highs hit in January, but way above any spot pricing recorded since August 2008.
The price rose $55/mt in the past three weeks after dipping to $1,460/mt February 17 in the wake of the Chinese holidays.
The most recent rise in ethylene price comes on the back of ongoing and upcoming cracker turnarounds in Asia, which will see a significant chunk of Japanese ethylene production wiped out for March and April.
In particular, at the moment Japan's Asahi and Taiwan's CPC crackers are undergoing maintenance. In addition, starting next week, two more Japanese crackers are going down for turnarounds -- Tosoh's Yokkaichi and Showa Denko's Oita. In China, Secco's Caojing cracker is also expected to start a two-month turnaround March 10, sources said.
As a result of the heavy maintenance program, availability of incremental ethylene molecules is limited.
In fact, supply tightness in Asia and attractive pricing had led to some shipments of ethylene from the European market, which is normally a net importer, in the previous several weeks.
Meanwhile, producers of ethylene derivatives have so far been unable to push rising production costs to their customers because of high inventory levels. Higher-than-usual Chinese stocks are capping spot prices both in the domestic Chinese market and in the region overall, sources said.
"We are losing money, and we were thinking about shutting down one of our lines," one MEG producer said this week, echoing the overall sentiment across the region.
"The price is too low. It is still too low to allow any margin for MEG producers," a trader said.
MEG was last assessed at $940/mt CFR China Friday.
With C+F Japan naphtha market assessed at $921/mt Friday, MEG's premium over naphtha came to only $19, way below the required $150, the same trader said.
A similar sentiment was observed among polyethylene producers, who saw more financial benefit in selling feedstock ethylene back to the market instead of producing derivatives.
"We are planning to reduce operating rates of HDPE [production by about 5-10%]. We realized that considering recent feedstock markets, especially strong C2 price, some portion of C2 can be sold in the market with better netback than PE, for which we hardly cover variable cost," a producer said. Taiwan's Formosa already has trimmed operation rates at its polyethylene plants in Mailiao and Linyuan to 70-80% from the previous 90%.
HDPE film spot price was last assessed at $1,515/mt, LDPE at $1,570/mt and LLDPE at $1,505/mt CFR Northeast Asia Friday.
