Europe sees fresh ethylene exports to Asia despite closed arbitrage

As ethylene supply length deepens in Europe with weak demand from derivatives and growing concerns over the impact of coronavirus outbreak on supply value chains, talks of Asian exports from both Mediterranean and Northwest Europe also emerged this week.

"Crackers have to run at lower rates, definitely. Some producers are so long, that cargoes left Tarragona to Asia, for what must be more than a 30% discount in CIF terms, if you look at Asian prices that is negative," a source said.

According to S&P Global Platts data, with Asian markers sliding Friday by $5-$10/mt on the day, to $690/mt CFR SEA and $695/mt CFR NEA, Europe to Asia price spread stood at approximately minus $89/mt, keeping the arbitrage closed on paper. Platts last assessed CIF NWE spot ethylene prices Thursday at $779/mt.

"Bit surprised about exports, producers probably losing money -- around $700 in Asia so not high enough for Europe," a second source said Friday

Furthermore, Chinese domestic supply continued to remain ample due to high steam cracker operation rates and weak demand in China, sources said.

European cracker margins increased since last month, with March monthly average spot margins hovering around Eur393/mt, Eur83/mt above the February average, Platts data showed. Cracker margins looked healthy so far in March, mostly helped by the continued falls in European naphtha prices, which were at around $420/mt CIF NWE so far in March average numbers, $45/mt below February levels, Platts data showed.

Market sources said that this could partially also be attributed to the lowered cracker run rates in Europe, which could be used to balance the supply of ethylene. Sources said steam cracker run rates were currently reduced by 10%, with further cuts depending on individual cracker parameters. Another factor for margin gains could be linked to better performance on other cracker products, such as propylene, which would be tighter as a result of run cuts.

"[An] incentive for cracker to maintain higher rates [is] to produce propylene actually, but ethylene demand in Europe very weak," the second source said.

Platts assessed European ethylene spot prices at Eur714.50/mt, down Eur20/mt on the day Thursday, while polymer grade propylene spot prices stood at Eur814/mt, down Eur1/mt from Wednesday, making propylene molecules better performing cracker output.