Recently, market participants and analysts have said on a number of occasions that although downstream demand continues to improve, the global olefin market will remain challenging in the second half of this year. The closely watched integration of olefin production capacity in Europe is not expected to have an impact on the region, while the imbalance between supply and demand in the rest of the world will continue to grow.

Insufficient impact of capacity integration in Europe

Market participants expect that European ethylene demand will remain weak and supply will continue to be surplus in the second half of the year. In April, ExxonMobil announced the closure of its steam cracking plant in Gravenchon, France, reducing ethylene production capacity by 425000 tons per year, while SABIC announced the closure of its steam cracking plant in Heron, the Netherlands, reducing ethylene production capacity by another 530000 tons per year. However, market sources have recently predicted that the closure of the two devices will not have much impact on the market. "the whole market will continue as it did in the first half of this year," said one producer. "

Market participants said that more rationalization of production capacity in Europe is still under way. In the second quarter, LeandBassel announced a strategic review of its European assets, arguing that market conditions would be challenging for a long time and that European regulations would increase cost pressures. Several European ethylene producers also expect it to be difficult for demand to recover in the second half of the year. Although they expect the industry to be rationalized soon, they still plan to keep their cracker operation rate at a low level. Industry insiders also expect that demand for olefin derivatives in Europe will remain low and the number of consumer contracts will continue to decrease.

Andy Olsinsky, head of S & P global commodity insight into olefins and derivatives, also said: "rationalization of olefin production capacity in Europe is a good start, but it has little effect in solving the problem of global oversupply."

Like the ethylene market, Europe will rationalize propylene production capacity in the future, and more shutdowns may continue to affect industry confidence. The European propylene market was also volatile in the first half of 2024. Propylene market volatility is likely to weaken as trade flows shifted due to Red Sea security challenges normalize. Although market participants expect demand to continue to grow, potential oversupply and weakness of key derivatives may make it difficult for the market to improve. The European market continues to generate huge premiums on the Asian and American markets, raising concerns that there will be a large supply of imports in the European market if the security situation in the Red Sea improves.

The pressure of global ethylene surplus is huge.

In addition to Europe, the Asian ethylene market will also face great pressure, especially the cracking unit of naphtha feedstock is difficult to balance feedstock costs and derivative profits. Based on the current weak macroeconomic outlook, even if most cracking units remain at low operating rates, willingness to buy will remain low, resulting in a supply glut. "as the recovery after the COVID-19 epidemic has not really begun, the overall consumption of finished products is still limited," said a Northeast Asian trader. High inflation and slow economic growth will continue to affect consumer spending and major infrastructure projects, all of which will affect ethylene demand. "

Ethylene demand is expected to remain weak due to negative profit margins for the production of key derivatives such as polyethylene, ethylene glycol, styrene and polyvinyl chloride. S & P Global said that based on current market conditions, Asian producers are expected to delay the commissioning of most new cracking units to 2025 and beyond, with only two new cracking units likely to be operational in the second half of 2024.

There is also a glut of ethylene in the United States, so despite several production failures, US ethylene prices were stable in the first half of the year. Unless there is a major change in downstream demand, prices are expected to remain stable in the second half of the year, market sources said. U.S. breakup capacity has not changed for the rest of the year, but it remains to be seen whether the Gulf Coast hurricane season, which runs from June to November, will affect operating rates.

Global propylene supply may soar

In Asia, new propane dehydrogenation (PDH) capacity will further exacerbate the excess propylene market and exacerbate price pressures in the face of tepid demand. S & P Global Commodity Insight expects that four PDH units with a total capacity of 2.61 million tons / year will be put into production in Asia in the second half of the year, while five units with a total capacity of 3.6 million tons / year will be put into production in Asia in the first half of the year.

S & P Global said that in the Americas, the price of raw material propane is expected to remain stable in the second half of the year, which may help stabilize the spot price of propylene. Similar sentiment has been expressed in the market, with one source predicting that prices will shift from steady to lower as long as production remains balanced. Another source said that as various derivatives come back online, demand is likely to be more diversified. Downstream polypropylene (PP) market participants expect the fundamentals to face challenges as new capacity continues to be put into production during a period of depressed export demand.

On the other hand, the rise in US propylene prices has made it difficult for US exporters to compete with Asian PP producers. The operating rate of PP devices in relevant enterprises has dropped to less than 80%, and it is expected that the operating rate will remain unchanged in the second half of the year. Source: China Chemical Industry Daily