ter 2015 is a positive indicator for ethylene demand in second-half 2015.
Petral Consulting forecasts polyethylene exports for second-half 2015 will mirror second-quarter levels and may
increase further. The increase in ethylene demand will require an increase in ethylene production, as well as limit an
accumulation of ethylene inventory. This leads to a positive
market outlook for ethylene in the near term.
The economic outlook for ethylene is a function of feedstock and coproduct prices, with trends in crude oil prices
determining price trends for both feedstock and coproducts.
Crude oil price forecasts are always subject to uncertainty, and forecasts for second-half 2015 are no exception.
The conclusion of negotiations between Iran and the
world’s major powers on development of nuclear weapons
resolved one major source of uncertainty for second-half
2015 and first-half 2016. These negotiations concluded with
a formal agreement that, if approved, will result in an end to
economic sanctions and oil export embargoes against Iran
imposed by the US and European Union.
Even though timetables for the ending of economic sanctions against Iran remained sources of uncertainty in late
June, crude oil markets responded bearishly immediately
following formal announcement of the agreement. At some
point in the next 6-12 months, sanctions will be lifted and
Iran will increase both production and exports of crude oil
by as much as 1 million b/d.
In the first few weeks following announcement of the
agreement, spot prices for WTI, dated Brent, and OPEC Reference Basket declined 10-15%, with crude prices during
July testing the low levels of first-quarter 2015. Petral Consulting’s forecasts for second-half 2015 are based on prices for dated Brent in the range of $45-55/bbl and prices for
WTI in the range of $42-48/bbl. The primary consequence
of weaker crude oil prices will be weaker prices for heavy
feeds.
Prices for light feeds (propane and butane), however, were
unduly depressed during May and June and are likely to rebound in fourth-quarter 2015 as seasonal factors result in
tighter supply-demand balances.
During first-half 2015, US Gulf Coast ethylene producers operated in an environment in which production costs
for natural gasoline were 10-20¢/lb more than costs for ethane. Differences between production costs for natural gasoline and ethane moved from the lower end of the range in
first-quarter 2015 to the higher end of the range in second-quarter 2015.
Based on a crude oil price forecast similar to that of first-
quarter 2015, differentials in production costs between eth-
ane and natural gasoline (and light naphtha of similar qual-
ity) most likely will be 5-10¢/lb. The same logic will apply
to differentials in production costs between propane and
natural gasoline. While differentials in production cost will
be less than in first-half 2015, light feeds will remain the
Due to various US ethylene plant outages in 2014, poly-
ethylene exports last year averaged 18. 1 million lb/day,
which was down by 1. 3 million lb/day ( 6.5%) compared
with 2013. Exports were 20. 2 million lb/day in first-quarter
2014 but fell to 15. 9 million lb/day in fourth-quarter 2014.
Polyethylene exports in first-quarter 2015 rose by 1. 9
million lb/day (12%) from the last quarter of 2014 to 17. 8
million lb/day before climbing to 21. 4 million lb/day in April
and 22. 5 million lb/day in May. In April, combined polyethylene exports to Canada and Mexico were 10. 2 million lb/
day, while exports to those same destinations in May were
down slightly at 9. 4 million lb/day.
US polyethylene exports to all other rest-of-world (ROW)
destinations averaged 7. 2 million lb/in both fourth-quarter
2014 and first-quarter 2015 before rising to 11. 3 million lb/
day in April and 13. 9 million lb/day in May.
Propylene, polypropylene
ITC statistics show US exports of propylene monomer were
2. 1 million lb/day in 2007 but declined steadily during
2008-14 to only 0.6 million lb/day in 2014.
During 2008-13, shipments to Colombia accounted for
75-95% of monomer exports. In 2007 and 2008, monomer
exports to Colombia averaged 1. 25 million lb/day and 1. 21
million lb/day, respectively, before falling below 1 million
lb/day in 2010 and 0.4 million lb/day in 2014. Shipments to
Colombia in 2014 accounted for just 65% of total exports.
Total US polypropylene exports were 12. 1 million lb/day
in 2007 but declined steadily during 2008-14 to just 5. 9 million lb/day in 2014, according to ITC data. Similar to the geographic disposition of US polyethylene exports, Mexico and
Canada were the primary destinations for US polypropylene
exports, which averaged 5. 6 million lb/day in 2007 and accounted for 46.6% of total exports.
During the past 10 years, exports to Mexico averaged
2. 5-3. 5 million lb/day, while exports to Canada were 1. 5-2.0
million lb/day. In 2014, exports to Mexico and Canada were
4. 5 million lb/day, which accounted for 76% of US polypropylene exports, according to ITC statistics.
Exports to ROW destinations were 4.0-6.0 million lb/day
during 2006-2009 but declined steadily during 2010-14 to
only 1. 4-1. 5 million lb/day in 2013-14.
Polypropylene exports to all destinations were 5. 5 million
lb/day in first-quarter 2015, and Petral Consulting estimates
exports averaged 6. 4-6. 5 million lb/day in second-quarter
2015. US exports to Mexico and Canada were 4. 3 million lb/
day in first-quarter 2015, with estimated exports of 4. 2-4. 5
million lb/day during second-quarter 2015.
Second-half 2015
The outlook for ethylene during second-half 2015 depends
on trends in production costs and demand for derivatives.
The increase in exports of polyethylene during second-quar-
