The outlook for the olefin market in the United States is shrouded in dust

After experiencing the turbulence at the beginning of 2023, oversupply continued to dominate the US ethylene, propylene, and butadiene markets. Participants in the US olefin market stated in their outlook that the market is becoming increasingly uncertain and the outlook has been overshadowed.

Due to economic slowdown, rising interest rates, and inflationary pressures, the demand for durable plastics in the market has been suppressed, putting the olefin value chain in the United States in an uneasy state. This continues the trend of the fourth quarter of 2022. This widespread uncertainty is reflected in the spot prices of ethylene, propylene, and butadiene in the United States at the beginning of 2023, with prices in all markets decreasing compared to the same period in 2022, reflecting weak demand fundamentals. According to S&P Global Commodity Watch data, in mid February, the spot price of ethylene in the United States was 29.25 cents per pound (FOB Gulf of Mexico), an increase of 3% from January but a decrease of 42% from February 2022.

US market insiders say that production conditions and unplanned plant shutdowns have disrupted market fundamentals, triggering an unstable balance between reduced supply and sluggish demand in some industries. This trend is particularly evident in the US propylene market, with 2 out of 3 propane dehydrogenation (PDH) plants in the US experiencing unplanned shutdowns in February. Boosted by tight supply, the spot price of polymer grade propylene in the United States rose 23% that month to 50.25 cents per pound (ex port price in the Gulf of Mexico). Uncertainty is not unique to the United States, and the imbalance in supply and demand fundamentals also cast a shadow on the olefin markets in Europe and Asia in early 2023. US market participants expect significant changes in global fundamentals to change the current pessimistic sentiment.

Nevertheless, in terms of upstream pressure, American companies have more reason to be optimistic than their overseas counterparts, as the main raw materials for olefin production in the United States, ethane and propane, have always shown stronger cost competitiveness than naphtha. Naphtha is the main olefin raw material in Asia and Europe. Asian companies have emphasized the importance of the raw material advantage of the United States in the global olefin trade flow, giving American sellers greater flexibility in exporting.

In addition to macroeconomic and inflationary pressures, weak buyer demand in the downstream polymer market has also cast a shadow on the U.S. olefin market sentiment, exacerbating the excess supply of olefins. With the continuous growth of global polymer production capacity, oversupply will be a long-term problem faced by American companies.

In addition, extreme weather conditions have also brought pressure to US producers, with the brief cold snap in late December last year and tornado activity in the Houston Waterway in January affecting olefin facilities and downstream production along the US Gulf Coast. In an area that has been hit by hurricanes for many years, such events can exacerbate market uncertainty, disrupt market liquidity and infrastructure. Although the direct impact of such events on prices may be limited, after their impact, energy prices will skyrocket, squeezing profit margins, and widening the gap in pricing expectations between buyers and sellers in the entire industry. Given the uncertain outlook for the remaining period of 2023 and beyond, market participants are providing increasing conceptual assessments of forward-looking market dynamics. Due to the expected weak demand from buyers in the short term, global oversupply may exacerbate liquidity shortages.

Currently, the US Enterprise Product Partnership is considering building a 2 million ton/year steam cracking plant in Texas, while Energy Transfer is considering building a 2.4 million ton/year plant that will use a fluidized catalytic cracking plant and a pyrolysis steam cracking plant to produce ethylene and propylene. Neither company has made a final investment decision on these projects. Energy Transfer executives have stated that in recent months, potential customers have retreated due to economic concerns.

In addition, the Enterprise Product Partnership is building a 750000 ton/year PDH device in Texas and plans to start production in the second quarter of 2023, increasing the PDH production capacity in the United States to 3 million tons/year. The company plans to expand its ethylene export capacity of 1 million tons/year by 50% in the second half of 2023 and another 50% by 2025. This will push more American ethylene into the global market.

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