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US ethylene nears 13-month high amid prolonged steam cracker outage

Houston — US spot ethylene Thursday reached its highest level since late July 2015 following talks of extended outage, two ongoing planned turnarounds, two restarts and two upcoming turnarounds at steam crackers, as well as murmurs of short-covering, sources said.

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Ethylene was assessed at 34-34.5 cents/lb FD USG for August and at 33.75-34.25 cents/lb FD USG for September deliveries Thursday, following the latest trades at 34.25 cents/lb MtB Wms and 34 cents/lb MtB Wms, respectively.

The prompt-month assessment was at its highest since July 23, 2015, when it was assessed at 34.25-34.75 cents/lb FD USG, S&P Global Platts data showed.

Spot prices have climbed 10.75 cents/lb, or 45.74%, since hitting a 3.75-month low on June 28 of 23.25-23.75 cents/lb FD USG, as ExxonMobil Chemical shut its steam cracker at Beaumont, Texas, on August 12.

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Initial talk of the outage duration at the 816,000 mt/year ethylene plant was heard near the two-week mark, while Thursday murmurs indicated a two-month outage. A company representative confirmed the outage but did not elaborate on its duration.

The shutdown was followed by planned maintenance at Dow Chemical's Light Hydrocarbon Unit No. 8 in Freeport, Texas on August 9, according to a filing with state regulators. Sources said the planned turnaround, which was expected to be completed in mid-September according to the filing, is to reduce the run rate of the 1 million mt/year ethylene plant by 40%-50%, but not take the plant out completely during the "hot patch" repairs.

ExxonMobil was heard successfully restarting on Thursday its 989,000 mt/year ethylene plant in Baton Rouge, Louisiana, which was down since August 3. The full effect of ExxonMobil's restart in Louisiana is not expected to materialize until the later part of the month, sources said.

Also on Thursday, Huntsman was heard restarting its 193,000 mt/year steam cracker in Port Neches, Texas, following an unexpected shutdown on Monday. And lastly in Texas, BASF Total restarted its joint venture Port Arthur steam cracker, after the 1 million mt/year ethylene plant was shut on August 5.

The string of shutdowns was preceded by a number of prolonged planned turnarounds which started in the second quarter of the year -- LyondellBasell extended the 120-day planned turnaround at its petrochemical complex in Corpus Christi, Texas, in late July. The turnaround at the 771,000 mt/year plant was to be completed by mid-August and is now to be completed near the end of September, the company said in an earnings call. The turnaround includes an 363,000 mt/year expansion, which is also to be completed in September.

Talk of the delay surfaced in early July and coincided with a several-week delay in Westlake Chemical's restart of its Petro-1 steam cracker at the company's complex in Lake Charles, Louisiana. The planned turnaround at the 567,000 mt/year plant included a 113,000 mt/year expansion, both of which were completed and operational in late July, according to a second-quarter earnings call.

One trade source said that the string of outages, the sudden spike in pricing, and the backwardated structure in the market -- where August deliveries at 34.25 cents/lb are 0.25 cent/lb above the September trading level of 34 cents/lb -- are indicative of intramonthly short-covering, where sales were concluded in the beginning of the month with expectations of pricing to move lower. The event is yet to happen, which in turn is resulting in further pushing of the prompt pricing higher.

A similar turn of events was last observed in the third quarter of 2014, when prices spiked from 54.75 cents/lb on July 1, 2014 to a record high of 76.25 cents/lb on September 19, 2014 -- a 21.5 cents/lb or 39.27% hike for the period -- which was also following a string of unexpected outages and restart delays.

At the time, the startup of LBI's 363,000 mt/year expansion in La Porte, Texas, and strong run rates from other producers provided the relief in pricing in the fourth quarter of 2014, which saw prices drop to the low 40s. The 40 cents/lb price level was last seen in the first week of January 2015, and have not tested that level since.

SUPPLY TIGHTNESS SEEN TO PERSIST

Sources said the tight ethylene market is likely to persist until the early part of the fourth quarter, as Chevron Phillips Chemical takes out its Cedar Bayou, Texas, plant in late August.

The 50-60 day planned turnaround at the 835,000 mt/year ethylene plant is to be completed in mid-to late October, sources said.

Lastly, Dow Chemical is expected to begin a 60-day planned maintenance at its 726,000 mt/year LHC No. 3 unit in Plaquemine, Louisiana, sources said.

The tightness in the ethylene spot market could be further exacerbated in Q3 by talk of a "hurricane premium" being factored into prices, as most US petrochemical production is clustered on the US Gulf Coast, an area susceptible to hurricanes.

--Pavel Pavlov, pavel.pavlov@spglobal.com
--Edited by Irene Tang, irene.tang@spglobal.com