Volatility is one of the blog’s key themes for the next few years, as the world transitions to slower growth and a more regional economy. And the chart above from the latest ICIS pricing Asian ethylene margin report highlights this new trend very well:
- Margins jumped 42% last week to reach $290/t, based on naphtha feed (red line)
- The main reason was a $35/t fall in naphtha prices (black)
- Yet back in August, the margin was only $9/t, after just $23/t in July
The key driver, as ICIS news reports is that
“Ethylene supply tightened during the second half of the year noticeably in the months of September-October due to several key cracker turnarounds and reduced operating rates at key ethylene plants in southeast Asia amid a gas feedstock shortage.”
Demand also picked up in China following the July mini-stimulus, which led to a major speculative boom in house prices. The speculative nature of this boom was highlighted by the fact that whilst China’s apparent polyethylene demand was up an astonishing 14% in the January – September period versus 2011, PVC demand (also based on ethylene) was up just 2% in the same period.
The data also highlights how China is continuing to grow its own capacity. Its PE production was up 7% versus 2011, and PVC production up 12%. The fact that China’s own production costs are some of the highest in the world is irrelevant, as the Communist Party leadership continues to prioritise social harmony, and therefore job creation.
Asian producers have thus reaped a windfall profit over the past few weeks. PE exports have been particularly strong from both NEA and SEA. But the NAFTA region has missed out, despite its low-cost position, with its PE exports to China down 10% and its PVC exports down 18%.
This also highlights how markets are already becoming more regional. China’s decision to focus on growing its own production doesn’t contravene any World Trade Organisation rules, and so there is no case for appealing its action.
In today’s increasingly volatile and regional world, Asian producers are thus celebrating an unexpectedly good end to an otherwise disappointing year.