The price of ethylene has dipped below US$900 per ton. Some industry analysts take it as a signal that the boom in the chemical industry that has continued for the past three years is coming to an end. They say the industry is entering a down cycle as South Korean, Chinese and American companies have been increasing their supply of chemical products.
According to the Korea Petrochemical Industry Association, the international ethylene price reached US$841 per ton on Dec. 7, down 38% from a year ago. During the same period, the price of naphtha, a base material for ethylene, fell from US$598 per ton to US$489 per ton. In other words, chemical product manufacturers’ profits are about to fall a lot as the prices of their products are falling faster than that of the raw material.
This is because of an oversupply. Japanese companies recently raised their capacity utilization to 95.2% and Middle Eastern and Southeast Asian companies are supplying a large amount of ethylene to reduce their inventory. In South Korea, Yeochun NCC and LG Chem resumed their production in September and November after regular maintenance, respectively. In addition, American companies located in and around Texas resumed production after the Hurricane Harvey that forced them to stop last year.
The global ethylene demand is likely to keep falling for a while as American ethane cracker plant operators are supplying polyethylene at low prices based on ethane and this is leading to a decline in the demand for ethylene, which is a raw material for polyethylene. The ongoing trade war between the U.S. and China is affecting the demand as well. With the international oil prices predicted to keep falling, some companies are reducing their chemical product purchase, accelerating the ethylene price decline.
No turnaround is in sight as of now. In view of crude oil prices, the naphtha price is unlikely to fall as much as the ethylene price.
Meanwhile, the supply of ethylene products is forecast to increase next year based on supply from American ethane cracker plant operators and Chinese chemical companies. In addition, S-Oil is planning to complete the construction of its ethylene manufacturing facilities with an annual capacity of 1.5 million tons in 2023 and Hyundai Oil Bank, GS Caltex and LG Chem are planning to increase their ethylene production as well. The South Korean companies supplied 8.79 million tons of ethylene last year and the amount is estimated to reach 12.88 million tons in 2023