VINACHEM

“All the balls are in the air, we just don’t know where they will fall,” is a very apt description of the uncertainty and insecurities facing ethylene and propylene producers and consumers both home and abroad in 2020.

Increased ethylene and polymer capacities and softer than expected derivative markets amid an uncertain macroeconomic, geopolitical future, will weigh on global ethylene and propylene markets, and players are in no doubt that the pressures will be high - in Europe - in particular.

2019 BELOW EXPECTATIONS
As we all know by now, 2019 fell extraordinarily short of all the predictions that had been made in the previous year.

Supply was not tight throughout 2019, despite the much talked about heavy cracker turnaround slate as well as a raft of unplanned outages and issues at other crackers. Even the key crunch point, where the downtime at two of Europe’s largest crackers coincided and then one had a delayed restart, failed to elicit any more than a contract reference price (CP) flat for spot volumes. Discounts against the prevailing CP were common, and high double-digit discounts were especially common in the fourth quarter, too.

Capacity change by month ('000 tonnes)*:

*red: unscheduled, orange: scheduled

Demand was below expectations. Ethylene demand, whether from the polymer or non-polymer sector, fared better than propylene, where consumption into the non-polymer propylene derivatives was additionally hit hard by reduced competitiveness on global markets, due to higher priced costs in Europe versus the rest of the world.

On the whole, ethylene supply and demand was better balanced than that seen for propylene in 2019, but neither market experienced the real tightness that had been feared by some players.

EXPECTATIONS LOWERED FOR 2020
Given that 2019 did not pan out as expected, expectations for the year ahead have been lowered. The onus will be on managing supply and cracker operations to support the European markets which are likely to be impacted and disrupted by the following:

INCREASING ETHYLENE, POLYETHYLENE CAPACITIES
9.5m tonnes of new ethylene production capacity will have come on stream in the US between 2017-2020, and a second wave of startups is due from the end of 2020 through to 2024. About 4.3m tonnes of additional ethylene is set for start-up in 2020 in Asia.

NEW US ETHYLENE EXPORT TERMINAL, OPEN ACCESS TO GLOBAL MARKET
The Enterprise Products Partners and Navigator Gas joint venture ethylene export terminal based at Morgan’s Point in the US, was due to load its first export cargo in the second half of December 2019.

The terminal which has the capacity to load 1m tonnes/year of ethylene will run at about 60%, according to sources, until some refrigerated storage is completed later in 2020. Ethylene will load much faster than from the current sole US ethylene export terminal – Targa – therefore US ethylene export capability will be vastly improved.

EUROPE COMPETITIVE LANDSCAPE TRICKIER TO MANAGE, TO PUT PRESSURE ON CRACKER UTILISATION RATES
Expected disruption - either directly through competitively priced ethylene exports to Europe, or indirectly through sheer weight of PE availability at home or in Europe’s traditional export markets - is high and tends to end in speculation over cracker operating rate cuts or even definitive closures.

However, possible rate reductions on crackers to balance ethylene as well as the increasing tendency to cracker lighter feedstocks, could see the propylene market make a reverse turn in 2020 - albeit after a slow start as inventories hanging over the year end get worked through.

This is because consumers have generally opted for more spot exposure versus contract having seen the length in 2019 – cracker cuts and unplanned issues could prove problematic if demand ends up being better than expected.

The 2020 scheduled cracker turnaround slate is described as that for a typical year, certainly less heavy and concentrated as it was in the spring of 2019.

There could be some support from Asia, which will see a heavy turnaround schedule in 2020, but at best this may just offset the new additional capacities.

An impact from new global capacities was always anticipated in Europe. It was expected in 2018, but did not happen. Then it was also anticipated in 2019. Now, however, the demand scenario is more complicated.

“It will be a tough year for some, but we have dealt with it before,” an integrated player said.

“[It will be a] very difficult year in 2020,” an olefins producer said.

“The pressure will be high, everyone needs to accept margins won’t be at the highs we have enjoyed” it added. - ICIS -