The price spread between ethylene and naphtha in Asia climbed $1.87/mt from last Friday to be calculated at $802.50/mt Monday, the highest level since October 2, 2017, when it was $807.38/mt, S&P Global Platts data showed.
The price spread is much higher than a typical breakeven spread of plus $350/mt.
On Monday, the CFR Northeast Asia ethylene price was assessed stable from Friday at $1,405/mt, the highest level since June 19, 2015, when the price was assessed at $1,410/mt, Platts data showed.
The CFR Japan naphtha price was assessed at $602.50/mt, down $1.88/mt from Friday.
The Asian ethylene market has been in a rising trend since November 2017, driven by healthy demand in China as well as tight spot supplies. In China, spot ethylene demand is seen to be firm as end-users have been actively seeking spot cargoes in a bid to fulfill their requirements amid slow term contract negotiations for 2018.
Market sources said the term contract negotiations are now in deadlock, as a buying and selling indications remained far apart. Sources close to the negotiations said offer levels were placed at plus $80-$85/mt based on a CFR Northeast Asia-based formula, while buyers were targeting around plus $50-$55/mt, at the same level of 2017 term agreements.
Some market sources said the term negotiations may stretch to February.
The recent strength in Asian ethylene narrowed some downstream margins, such as polyethylene. On Monday, the spread between PE and ethylene was calculated at minus $115/mt compared with minus $125/mt on Friday. The spread has been in a negative territory since November last year.
This compares with a typical breakeven spread of plus $150/mt.
Integrated producers would normally reduce PE plant runs amid negative PE margins. But this time, a majority of producers in Asia have kept PE plants running at high rates.
A Japanese producer said PE plant run rates in that country are currently at 100%, in a bid to meet strong local demand.
"Negative PE margins would unlikely ease spot ethylene supplies," the producer said.
A company source at Korea Petrochemical Industry Co., or KPIC, said Monday that its PE plant operations were at 100%, in order to supply its regular customers.
Deepsea supplies are expected to turn thin, in line with the startup of some ethylene derivative plants in the Middle East. Saudi Arabia's Petro Rabigh started commercial operation of its new low density polyethylene plant by the end of last month. Petro Rabigh had been selling spot ethylene cargoes on a regular basis prior to the LDPE plant startup.
