December contract prices for ethylene and propylene in Northwest Europe will likely be lower month on month against a backdrop of falling feedstock costs, increased supply from crackers, and subdued demand from derivative producers, sources said.
WEAKNESS IN UPSTREAM NAPHTHA
S&P Global Platts ethylene and propylene indicators for December contract prices were assessed at steep declines from November, following lower upstream naphtha prices, Europe's primary feedstock for olefin production.
Platts ethylene indicator for December was assessed Friday at Eur920.50/mt ($978/mt) FD NWE, down Eur49.50/mt from the industry settlement for November. The propylene indicator was assessed at Eur696.50/mt, Eur58.50/mt below its industry settlement for November.
The price of naphtha in Northwest Europe has fallen 7% since the ethylene and propylene contracts last settled on October 28. Naphtha's spot price for cargoes was assessed at $413.50/mt CIF NWE Friday.
Naphtha, which followed downward movement in crude oil, has also had a lack of support from gasoline blenders causing noticeable falls this month.
A small uptick in prices Friday came from petrochemical producers, amid European cracker restarts.
However, naphtha market sources said overall demand from petrochemical end-users was tepid and, therefore, would not be enough to boost prices significantly longer term.
Major support comes from an arbitrage to Asia, which last week managed to absorb some of the excess length in the Mediterranean.
RETURN OF EUROPEAN CRACKER CAPACITY
In the second half of November, Northwest European ethylene and propylene production from crackers will rise close to full strength as the return of LyondellBasell's OM4 plant in Wesseling, Germany, and Versalis's Dunkerque, France, cracker was expected from scheduled maintenance.
Ineos's ethane cracker in Rafnes, Norway, was also expected to restart production of olefins at the end of November. The Rafnes cracker has been shut following a fire at the cracker's compressor, a critical unit in ethylene production.
"Destocking in Europe occurs while most crackers are back up and running. So, the market has shifted to the long side and margins are still very good -- an incentive to run as hard as possible," an olefin buyer said.
Ineos's, LyondellBasell's and Versalis's crackers, which make up over 5% of Northwest European ethylene capacity, will follow the restart of both of BASF's Ludwigshafen crackers, which began production at the beginning of November and BP Refining and Petrochemicals' Gelsenkirchen, Germany, cracker, which started late October.
BASF's Ludwigshafen crackers and BPRP's Gelsenkirchen cracker together make up over 7% of Northwest European ethylene capacity.
Further adding to length was recent supply growth in eastern and central Europe. PKN Orlen's large 700,000 mt/year cracker at Plock, Poland and MOL's Tiszaujvaros, Hungary steam cracker, which produces 250,000 mt/year of ethylene, both restarted in the first half of November. PKN Orlen also restarted its 544,000 mt/year Litvinov cracker in the Czech Republic at the end of October.
DECLINE IN DEMAND FROM DERIVATIVE PRODUCERS
Demand for ethylene and propylene from major derivatives polyethylene and polypropylene, respectively was expected to decline in December.
"December demand [for propylene] slows down a little. We do not even consider it a full month with the holidays," a propylene buyer for polymer production said.
Gross contract prices of low density polyethylene and polypropylene were assessed at a rollover on Wednesday from prices in October. Contract prices of LDPE and PP failed to prove increased despite the Eur30/mt higher ethylene and propylene contract price cost seen this month.
"There is pressure on [polymer] producers to offload ahead of December. What they can sell now at a rollover will be at a higher price than next month," a converter source said.
