At the beginning of 2018, almost all European ethylene and propylene market participants were full of expectations for this year. However, from the Rhine level to the Sino-US trade friction, negative factors from inside and outside Europe destroyed all the high expectations of the market. By 2019, the European olefin market is still facing uncertain factors such as cracker maintenance, changes in the olefin market, and trade frictions, which has prompted market participants to cautiously look forward to this year's market.
Early last year, few people would doubt the high profitability of the olefin market. Crude oil prices remain low, market demand is healthy and stable, profit margins of new products have increased, and operating flexibility of cracking units has increased. European market participants believe that the olefin market can meet various challenges.
However, the actual problems faced in 2018 are much worse than expected. The Sino-U.S. Trade friction has led to increased uncertainty for downstream companies, sluggish market growth, and greatly reduced terminal demand. The hot summer in Europe has caused the historical low water level of the Rhine, coupled with the shutdown of some ethylene cracking units, which caused the German ARG ethylene pipeline network to reduce its flow for a period of time, and eventually led to the serious fragmentation of the ethylene and propylene markets. Sellers in coastal areas have excess goods, and their prices are significantly lower than the corresponding contract reference prices (especially ethylene).
In the new year, when the downstream market is not very clear, European market players * are concerned about the cracker maintenance plan. Previously, the market predicted that the European cracking unit would undergo a large-scale maintenance in the spring, and there will also be a considerable number of unit maintenance in the fall. Regardless of global demand for olefin derivatives, the overhaul of European crackers will undoubtedly limit European ethylene and propylene supply. If global markets continue to weaken, this may offset weakness in European markets and increase upward pressure on the market.
But for now, the supply situation in the European market is uncertain. Market participants believe that European ethylene is a structural surplus, so the market will continue to maintain structural exports. Once downstream consumption has an unexpected impact, the amount of spot exports will increase, thereby curbing export prices. This situation occurred twice last year. Considering the uncertain factors such as Sino-US trade friction and downstream facility maintenance, the European olefin market is not optimistic.
Moreover, the market outlook for ethylene and propylene in Europe is different. For ethylene, in addition to the upstream and downstream supply relationships in Europe, the impact of the new polyethylene capacity in the United States on the European ethylene market also needs to be considered. If China and the United States can resolve their trade disputes, China will be able to absorb some of the new polyethylene capacity in the United States. This is good for Europe, on the contrary, European ethylene prices will be under pressure. Market participants expect that the European ethylene market will remain in surplus until the start of maintenance this spring.
The market for propylene is not the same as for ethylene. Last year, the lightweighting of ethylene cracking feedstock meant that propylene production was tighter in structure, and the Rhine water level also severely affected supply and demand. This year, the propylene supply gap may still exist. With the coming of the maintenance season and the rebuilding of propylene derivative stocks, the propylene market will usher in a good start this year. However, to a certain extent, propylene will still be subject to the development of the ethylene market. Poor ethylene market conditions may lead to a reduction in the load factor of cracking units and further limit propylene supply.
