European olefins spot activity diminishes, with prices hitting record lows

New York — European olefins market spot market activity has been progressively lessening in April, with buyers limiting activities to minimum contractual requirements, market sources say.

With a two-fold effect from the recent historic low crude oil and naphtha prices combined with the ongoing impact from the coronavirus pandemic on downstream demand, European olefins came under increasing pressure and prices hit rock bottom this week.

The ethylene market was the most affected, with unprecedented low prices and discounts were heard in the market. The European three-30 day forward FD NWE ethylene spot price was last assessed Friday at Eur315.50/mt Friday, down Eur75/mt on the week and down Eur174/mm since beginning of the month. At this level, European ethylene spot prices stood at 21-year record low, last seen below this mark in April 1999, S&P Global Platts data showed.

After a muted spot market so far in April, two deals were heard last week at 45% FD NWE for April and May delivery, with another heard this week agreed at $300/mt FD NWE for May delivery, an estimated 59% discount to the April contract price. The CIF market was seen under even more pressure, with above 50% discounts seen possible for May, as coastal availability was higher than inland, while demand concerns for May also remained.

"Big swings in the market", a source said. "I do not know what to think of the volatility, when this is going to end – short or long term. It is very difficult.

Another source said he had seen no spot deals for the past three months.

"There is no relief," he said. "Its reality."

A trader said this was the lowest spot prices for ethylene seen, but many had mixed views as to how representative the above deals could really be of the market price under such volatile market conditions. Nevertheless, ample supply of ethylene is set to stay for the time being, sources also said. European market sources expected such low prices to continue, while awaiting for the May contract price settlement.

Polymer grade propylene has also begun to show signs of weakening fundamentals, with earlier supply tightness heard easing and spot discounts seen widening to around 6%-7% inland and 7%-9% on the coast. Market sources said that while ethylene fundamentals kept weaker than propylene, over the next weeks, propylene was also expected to get longer, partly due to plants heard returning from maintenance works adding to the supply and ongoing demand uncertainties.

Consequently, European cracker margins dropped sharply this week to hit Eur435.720/mt in the spot market and Eur834.320/mt in the contract market, and falling by Eur243.68/mt and Eur76.21/mt, respectively, since beginning of the month, Platts data showed. This reflected the gains in upstream naphtha prices as well as lower olefins complex. According to Platts data, European CIF NWE naphtha cargos were in April on average around $105/mt (Eur97) below March, with gains supported by the improved eastbound demand.

On the C4 side, spot prices reached record lows amid an absence of demand for butadiene as producers were heard to be selling material at a loss in order to maintain cracker operations. The Platts European export price FOB Rotterdam fell by $150/mt on the week to $50/mt, a record low since Platts started assessing the export price in 1985.

The European butadiene contract price for May settled Tuesday at Eur325/mt, a fall of Eur200/mt on the month and the lowest the contract price has been since Platts started assessing in 2007.

Length in butadiene markets globally has left European producers with little options for crude C4 and butadiene as profitability in cracker margins previously discussed meant that product continued to be produced.

"If the question is will you stop your steam cracker or pay to export CC4 then the second part is the easiest option," a trader said. "At these naphtha prices, it makes much more sense to run [crackers]."

A bearish naphtha market, with spot prices this week reaching their lowest since 2009, meant that producers continued to favor naphtha over other feedstocks contributing to the length in the C4 markets. Naphtha typically yields some three times as much C4 product in a steam cracker as ethane and propane, according to S&P Global Platts analytics.

"BD is not so good and at its lowest price ever pretty much," a trader said. "People are continuing to crack naphtha due to the low price, so you get more C4 produced."