A remarkable thing happened this week in European olefin markets. Contract prices for butadiene and propylene were finalised for April/Q2 at higher levels than for ethylene. This has never happened before, in Europe or other regions.
The chart, based on ICIS pricing data, shows how ethylene (blue line) has normally been the highest priced olefin. Butadiene (green) has often been relatively tight during downturns. And in 2005/6, propylene (red) and ethylene were sometimes similarly priced. But we have never before seen both “co-products” higher than ethylene itself.
The rationale for the changes is the arrival of the ethane-based crackers in the Middle East, and greater use of lighter feedstocks in other regions. This is significantly reducing the amount of propylene and butadiene co-produced on steam crackers. Low refinery operating rates are also temporarily reducing propylene production from this source.
Propylene should return to better balance over the next few quarters, as more new capacity comes on stream via propane dehydrogenation and metathesis, as well as from the new Asian refining capacity. Equally, lower prices for ethylene will start to improve polyethylene’s (PE) competitive position versus polypropylene, after an extended period when PE supply has been relatively tight.
Butadiene, however, may well remain tight for some time. This was a key conclusion from our 2008 Feedstocks for Profit Study, when we warned that a Global Downturn scenario would lead to shortages of butadiene as Europe’s steam crackers “will turn down relatively harder than auto production, due to Middle East production taking a relatively higher share of C2 demand, and thus reducing the supply of butadiene“.