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FACTBOX: Upstream rally hits petrochemical production margins

  • Author
  • Benjamin Brooks    Philip Reeder    Staff
  • Editor
  • Jonathan Dart
  • Commodity
  • Oil Petrochemicals

London — European petrochemical producers are facing mounting pressure to trim production as higher crude-led feedstock costs and weak demand have tightened margins.

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Rises in feedstock naphtha and steady olefins prices have caused cracker margins to fall around 25% so far in June from May's and around 75% from March's.

Cracker operators are now also considering shifting from 100% naphtha cracking to minimal LPG allowance as the latter becomes more profitable.

In aromatics markets, while it may be too soon to expect driving demand to return to pre-lockdown levels given long-term remote working, gasoline prices have rebounded from the lows in April.

However, for plastics producers, the challenge of reducing high inventories lingers in Europe while upstream recovery has begun to push up feedstock costs.

The following are key facts about the latest developments affecting the European plastics and consumer goods markets:


—European polyethylene demand cools on weak global economy, debt levels crimp deal making


—European ethylene prices rose 12% June 17 since the start of the month, tracking naphtha, partially supported by supply limitations.

—June 1-17 European average spot cracker margins dropped by 32% from May's average, and contract margins fell 27%.

—Northwest European R-PET clear flake margin over post-consumer PET bottle bales is close to production costs, at Eur380/mt, on June 17, as weak demand limits price increases.

—FOB Rotterdam methanol spot price was at a 40% discount to the Q2 contract price on June 17, significantly above commercial discounts for 2020, which are around 25%.

—Low feedstock methanol prices support MTBE production margins, while MTBE prices are capped by ample supply.

Infrastructure, trade flows

—Sabic's Wilton ethane fed steam cracker in the UK was shutdown June 17 on unplanned issues, while its original planned maintenance date was moved from spring 2020 to autumn, because of the coronavirus pandemic.

—Plastic recycling plants continue to run at reduced operating rates on lower-than-expected seasonal demand, high feedstock prices.

—Lack of low density polyethylene imports exacerbates supply issues into July, but buying interest is still low.