Weekly Review

Domestic ethylene prices in China weakened this week. Increased sales resources from producers in northern regions led to lower-priced negotiations in the market, causing an overall downward shift in domestic transaction levels. The mainstream ex-tank negotiation range in East China softened to 9,300-9,800 yuan/ton, while Shandong prices moved to 9,080-9,400 yuan/ton. In the USD-denominated market, CFR Northeast Asia prices held firm at an average of $1,450/ton, supported by persistently low naphtha cracking operating rates in Asia, which are expected to be difficult to restore in the short term.

Looking ahead to next week, domestic supply is expected to remain sufficient, likely keeping the truck-delivered market weak with potential fluctuations. The mainstream price range in East China is anticipated to hover around 9,300-9,600 yuan/ton. For USD prices, the ongoing ethylene supply gap in Southeast Asia is expected to sustain decent export demand, keeping USD prices firm.

Recent Market Focus:

1. Increase in low-priced resources from northern regions.
2. Export negotiations this week were primarily directed towards Southeast Asia.

I. Temporary Domestic Supply Release Impacts Market, Low-Price Negotiations Emerge
Domestic ethylene prices fluctuated lower this week, with market dynamics still primarily driven by supply-side variables. At the beginning of the period, mainstream domestic offers were concentrated around 9,600-10,000 yuan/ton, with holders showing limited willingness to offer discounts. However, subsequent temporary releases of low-priced ethylene resources by a producer in Shandong, due to fluctuations at its downstream polyethylene unit, triggered price declines in other domestic regions. By Friday, mainstream prices in East China had fallen to 9,300-9,800 yuan/ton, while Shandong prices softened to 9,080-10,000 yuan/ton. Due to lower prices in Shandong, some cargoes flowed to Jiangsu and Anhui in East China, with delivered prices accepted in East China this week at 9,700-9,800 yuan/ton.

Asian ethylene prices remained firm this week. Widespread production cuts or maintenance at naphtha crackers in other Asian regions led to significant local ethylene shortages. Available export supplies continued to shrink, while downstream buying demand steadily emerged. Supported by the supply side, USD-denominated negotiation prices in Asia stayed firm. Concurrently, with export arbitrage opportunities opening, active trading of domestic and export seaborne cargoes was seen in East and South China this week to capture economic arbitrage. Southeast Asia and Taiwan, China, are currently accepting relatively high-priced landed cargoes at $1,400-1,500/ton.

Ethylene industry output this week decreased to 1.0935 million tons. Naphtha cracking operations continued to see reduced operating rates due to hindered feedstock imports from the Middle East, leading to lower output from this process. Other processes maintained relatively high operating rates due to a temporary recovery in profitability.

II. Supported by Overseas Buying, USD Ethylene Prices Remain Firm
Forecast: Domestic ethylene production may decline over the next three weeks, potentially falling to around 1.1 million tons at the lowest. Regarding commercial availability, ethylene resources available for external sale from naphtha crackers and MTO units are expected to increase. In the international market, restoring ethylene supply in other Asian countries and regions in April-May will be challenging, suggesting China's ethylene export arbitrage window will remain open for an extended period. China's ethylene industry chain possesses flexible adjustment capabilities, allowing for increased ethylene sales to capture export arbitrage. In this context, domestic producers with export qualifications are expected to continue actively pursuing export negotiations.

1. Imported seaborne cargoes remain tight, domestic seaborne cargoes become key supplementary resource
Production cuts at naphtha crackers in Japan, South Korea, and Southeast Asia are currently more widespread than in China, generating significant ethylene procurement demand. These regions can accept landed ethylene prices around $1,500/ton. In contrast, within China, as ethylene prices are higher than downstream derivatives like polyethylene, some integrated plants have proactively reduced polyethylene unit operating rates or undertaken maintenance, increasing the volume of ethylene resources available for external sale. Against this backdrop, China's ethylene export arbitrage window has opened. Qualified producers are actively advancing export operations to realize profits, with transaction prices this week concentrated in the $1,340-1,400/ton range, equivalent to 10,450-10,900 yuan/ton, significantly exceeding the domestic truck-delivered price range of 9,100-9,800 yuan/ton. On the plant front, South Korea's LG Chemical's 800 kta naphtha cracker in Yeosu underwent maintenance shutdown on March 23rd, with restart timing pending.

2. Increase in truck-delivered commercial volume pressures domestic ethylene prices lower
The overall ethylene capacity utilization rate this week was 81.27%, down 2.16 percentage points week-on-week. In terms of sales volume, Shandong's ethylene availability increased noticeably, with some low-priced negotiations pulling down domestic truck-delivered market prices.

3. Imported seaborne cargoes decrease, domestic seaborne cargoes fill the gap
Due to tight import supply, available import resources for domestic purchase have decreased. However, some enterprises in East and South China have reduced downstream operating rates, increasing ethylene seaborne cargo sales to alleviate market supply pressure. Additionally, export negotiations have been exceptionally active recently, with some companies' export shipment schedules for April already full.

III. Derivative Profitability Declines, Buying Focuses on Low Prices
Forecast: Over the next three weeks, the overall demand trend from major downstream sectors (including integrated plants) in the Chinese ethylene market is expected to rise. However, demand from the five major downstream sectors is projected to peak near 1 million tons, showing a significant decline from previous periods. Although supply is expected to decrease over the next three weeks, it is insufficient to support a price recovery.

1. Domestic ethylene prices soften, but five major downstream sectors remain in loss-making territory
This period, due to significant losses in polyethylene derivatives, some enterprises reduced polyethylene output and increased ethylene sales to balance profits.

2. Demand for ethylene from polyethylene derivatives declines noticeably
During the week, downstream derivative capacity utilization rates showed mixed movements, with styrene monomer experiencing the most notable increase.

From the perspective of the ethylene industry chain's end-use, capacity utilization rates for plastic weaving products improved significantly. This was mainly due to rising crude oil and feedstock prices driven by the Middle East conflict, prompting downstream enterprises concerned about further cost increases to actively build inventories, boosting orders for plastic products.

• Polyethylene: The average operating rate for China's polyethylene downstream products increased by 2.1% from the previous period.
• Styrene Monitor: Consumption by China's three major styrene derivatives (EPS, PS, ABS) this period was 251.9 kt, down 11.3 kt or 4.29% week-on-week. Output from the three major downstream plants declined slightly during the week.
• Ethylene Glycol: Sample demand for ethylene glycol in China was 535.1 kt, down 0.04% week-on-week.
• PVC: This week, the capacity utilization rate for PVC producers was 80.79%, down 0.13% week-on-week but up 0.77% year-on-year.

IV. Crude Oil Maintains Strength, Losses for Oil-Based Processes May Widen
International oil prices are expected to have room for increase next week. The Iran-Israel situation and progress in US-Iran negotiations have become core variables dictating current oil price trends, requiring continuous close monitoring. The sudden Iran-Israel conflict rapidly pushed up crude oil risk premiums due to market避险情绪, significantly intensifying short-term oil price volatility. Subsequent trends will heavily depend on whether the conflict escalates further and whether it impacts energy facilities and shipping security in the Strait of Hormuz. Additionally, technical negotiations between the US and Iran scheduled for March 2nd will directly influence oil price direction. Attention should also be paid to policy signals from the OPEC+ meeting on March 1st. Overall, against the backdrop of heightened geopolitical risks, short-term oil prices have room to rise, with Brent crude futures有望站上 $75/barrel range.

Forecast: Due to tensions in the Middle East hindering feedstock procurement from the region, coupled with Russian crude oil restrictions, oil-based production costs are expected to remain high, potentially widening losses for oil-based processes.

V. Truck-Delivered Market Faces Pressure, but Seaborne Market Maintains Firm Tone
Next week, focus will be on the stability of upstream operations.

Conclusion (Short-term): Market supply availability and downstream derivative procurement demand may increase slightly next period. However, the market will maintain a buying strategy focused on low prices. Prices are expected to be僵持偏弱, with the domestic ethylene price range anticipated around 9,300-9,600 yuan/ton. Strong expectations for rising crude oil, combined with a tight supply-demand balance in the shipping market, provide strong upward momentum. USD-denominated negotiations may fluctuate in the $1,350-1,400/ton range.

Conclusion (Medium-term): In April-May, although cracker operating rates may be difficult to restore, the trend of some enterprises reducing internal use and increasing ethylene sales is expected to continue, leading to a slight increase in domestic truck-delivered supply. Overall, negotiations in the truck-delivered market are expected to be weak, but the overall decline will be limited, with the price range likely hovering around 9,000-9,800 yuan/ton. Supply in the seaborne market is expected to decrease, making prices prone to increases rather than decreases. CFR Northeast Asia ethylene prices are expected to fluctuate within the $1,350-1,600/ton range.

Risk Warning: Start-up/shutdown situations of crackers in Japan and South Korea; Changes in Middle East geopolitical situation.

Zhang Min
Ethylene Market Analyst, Ethylene Industry Chain
Chempricehub Information
Website: www.chempricehub.com