New US ethylene supplies coming on line in the first half of 2019 are unlikely to depress Mont Belvieu, Texas, prices as new derivative units help balance the market.
The US is currently flush with ethylene, and the start of four new units and a mothballed facility in the first half of 2019 are expected to increase overall US ethylene production by 15pc. But this new output is unlikely to send spot ethylene prices lower because about 80pc of the new capacity will be paired with derivative units.
Louisiana start-ups account for 70pc of the new capacity. The two smallest of the five new crackers — both long-delayed — Indorama's 420,000 t/yr unit and Shintech's 500,000 t/yr in Plaquemine, will not be paired with derivative units. These units will add to ethylene's bearishness, but their impact may not be significant. Indorama's cracker is expected to begin commercial production by mid-January, while Shintech's startup is expected sometime in the first half of 2019.
The three larger crackers, which includes Sasol's 1.5mn t/yr cracker, Westlake and Lotte's 1mn t/yr cracker and Formosa's 1.6mn t/yr cracker in Point Comfort, Texas, will all be paired with new derivative units, limiting their impact on ethylene prices.
Sasol has two new PE units at 450,000 t/yr each. Most of Westlake/Lotte's unit's ethylene will be used for Lotte's new 760,000 t/yr monoethylene glycol (MEG) unit in Lake Charles. Formosa has delayed its cracker startup to the second half of 2019 to coincide with the startup of 800,000 t/yr in new PE capacity from two new PE units in Point Comfort. Westlake/Lotte is heard to be starting up in January, and Sasol's 1.5mn t/yr cracker is reaching mechanical completion this month.
Spot ethylene prices rose by 59pc during the second half of 2018, led by higher ethane feedstock costs in the third quarter and steady demand from polyethylene. Ethane hit a 6½-half year high in late September as constrained fractionation capacity led to more ethane rejection and tightening supplies, before weakening again throughout October. Despite the September spike in ethane, most units continued to crack ethane.
While ethylene did fall alongside ethane in the first half of October, over the last two months ethylene has remained steady, despite ethane further weakening. Market participants point to steady demand from PE, particularly the ramp up of Dow's LDPE unit in Plaquemine and some ethylene production issues, including a November turnaround for Nova Chemical's 880,000 t/yr merchant cracker in Geismar, Louisiana. US PE production is up by 6pc, when comparing the average of the first four months of the second half of 2018 with the average of the first half of the year.
Feedstock costs could move prices lower, but this is unlikely as ethane, the preferred crack, remains in contango through the middle of the first quarter 2019 and remains flat in the second quarter.
