Strong butadiene (BD), propylene and propane prices in northeast Asia have helped improve ethylene cracker costs in recent weeks, but negative margins persist.
Propane values have been elevated relative to naphtha during the last month. Argus Propane Ningbo Index values rose in late January relative to regional naphtha prices. Propane and naphtha had been near parity since 2021, but the price of propane rose to average 1.18 times that of naphtha from 20 January to 1 February. Higher propane prices have pushed up costs for Chinese propane dehydrogenation (PDH) producers. In turn, a price floor for propylene has been set at an elevated level, helping to lift cracker margins.
Asian propylene prices rose to a seven-month high last week, owing to a tightening of supply resulting from reduced operating rates at Chinese PDH plants. PDH utilisation rates have fallen to 66-68pc this month compared with 70-74pc at the end of January.
Seven of China’s eight new cracker projects that started up in 2022 rely primarily on naphtha, rather than propane, as a feedstock, according to Argus Ethylene Analytics. If high propane prices persist and the olefins chain continues to rebound, the naphtha crackers could gain a cost advantage. The South Korean and Taiwanese fleet of crackers in 2021 had the ability to take primarily naphtha with some propane flexibility, while a handful in South Korea can crack butane or gasoil. All of Japan’s crackers are naphtha-based.
Cracker co-product BD in Asia-Pacific hit a seven-month peak at $1,305/t cfr on 10 February, as traders covered short positions to fulfil term obligations. Prices began to increase gradually from $750/t on 9 December, but the rise has accelerated since then, with prices soaring by almost a third from $985/t on 27 January. During the same period, Asian BD regained its position as global price leader from the US. North American spot BD prices had retained a consistent premium since March 2021, driven primarily by a supply shortfall.
Whether or not BD prices will be able to maintain these levels is questionable, as buying indications for derivatives acrylonitrile butadiene styrene (ABS), styrene butadiene rubber (SBR) and polybutadiene rubber (PBR) are lagging the increase in BD.
The turnaround season for regional crackers has contributed to the propylene and BD supply crunch. South Korea’s Hyundai Chemical and YNCC crackers are still undergoing planned maintenance.
But negative cracker margins persist in Asia-Pacific, despite the support provided by rising prices for both olefins. LG Chem is considering advancing scheduled maintenance at its Yeosu No. 2 cracker to March from April because of concerns over weak margins. The Philippines’ JG Summit in Batangas will shut its cracker starting from 17 February, but the company has no firm restart date because of poor margins.
It could still take some time for downstream demand to recover to the extent that olefins prices are strong enough to provide relief to cracker margins. Participants still anticipate further cuts to cracker operating rates or even shutdowns while margins remain firmly in negative territory. But the market is hopeful that China’s buying appetite will rebound in the coming weeks.
This article includes data and insight from Argus’ Butadiene and Propylene services, plus the Argus CFR Ningbo Index.
