Ethylene Margin Feast On Borrowed Time

By John Richardson

A remarkable feature of early 2010 has been the tremendous margins enjoyed by Asian ethylene producers.

Profitability in February, up until the end of the second week, had been the strongest since 2001, according to my colleagues who produce the weekly Asian Ethylene and Polyethylene (PE) Margin Reports. We will provide some graphs illustrating their findings a little later.

Reasons include:

A dip in exports from Iran as all gas streams have been diverted to power and domestic consumption during the winter months

*Strong co-product credits from benzene in early January. These fell back, but then recovered late last week

*Shell Chemicals buying ethylene to run its new monoethylene glycol (MEG) plant at Jurong Island in Singapore

PE profitability, too, has been good – although the stand-alone players have inevitably come under a lot of pressure of as C2 prices have soared.

It’s been so easy over the last 18 months to paint many gloomy pictures of the future that haven’t come true for all sorts of reasoj.

And right now in the case of ethylene, Iran might be in a position to export more C2s as the weather gets warmer.

Shell is reported today to be buying more ethylene – but this time to test-run its new Singapore cracker.

When the cracker comes on-stream, which could occur in March, the global oil and petrochemicals major will be exporting around 115,000 tonne/year of ethylene from Singapore.

And perhaps needless to say, there are the threats to olefins and polyolefins in general from tighter credit in China and new capacities yet-to-arrive in the market.

This slide, from the re-launched ICIS global ethylene capacity tracker, illustrates the flood just around the corner: