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Europe PE, MEG producers brace for return to anti-competitiveness once US export flows resume

European ethylene derivative producers, used to the recent record high price up-cycle and in the current cycle of economic recovery post-lockdown, are concerned that once the container logistical issues have been ironed out they will return to the pre-pandemic levels of anti-competitiveness versus the US and Asia, a polymer producer source said.

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That level of anti-competitiveness versus the US seen pre-2020 could in fact worsen given the additional capacity added since the start of the pandemic, the producer source said. Most of this capacity has been running at reduced operating rates since the start of the pandemic, particularly hurt by the impact of the big freeze in February and by Hurricane Ida in September.

"I'm pretty concerned that once supply chains are open that we will be hit very hard in Europe by competition from polyethylene from the US or Asia," the polymer producer source said.

"I'm not concerned by polyvinyl chloride as that is tighter but certainly [other] polymers due to the capacity additions that have been added to US but also Asia."

The same source explained that once these new plants restart, and if there is a return to the pre-pandemic import re-supply product flows, this is likely to hurt European polyethylene producers and mono-ethylene producers, if naphtha-based costs remain as they are, with oil prices at current multi-year highs.

This would also be compounded if US shale-gas costs significantly undercut naphtha-based production cost economics as they did pre-2020.

"Looking at the ethylene price, it is close to Eur1,200/mt, whereas in the US ethylene prices are at $650-$700/mt for spot and $850-$900/mt for contract," the source said. "It is $1,100/mt or close to that for Asia and this is something that will need to correct as we will be uncompetitive with them and once the logistics issues ease up, we will see more polymers entering from the west or the east and the marginal tone will be uncompetitive."

In the European inland market, S&P Global Platts assessed ethylene spot prices at $1,018/mt FD NWE on Oct 13. The October industry-settled ethylene contract stands at Eur1,190/mt FD NWE.

In the US, spot Mont Belvieu ethylene for front-month October was assessed at 33 cents/lb or $727/mt FD Mont Belvieu on Oct. 13. US Gulf Coast spot export ethylene was assessed at 44.294 cents/lb or $976.5/mt FOB USG, down 0.272 cents on the day. In the key Asian ethylene market, CFR Northeast Asia spot price was assessed at $1,160/mt, while CFR Northeast Asia spot prices were assessed at $1,075/mt.