Based on the data collected by SSESSMENTS.COM, ethylene prices fell below $400/ton in Asia as supply outstripped demand in the region. At the beginning of January, ethylene prices on CFR Southeast Asia neared $700/ton and reached the highest ceiling at $804/ton on February 5. However, as of Wednesday afternoon, April 16, ethylene prices have fallen to $383-389/ton on CFR SEA basis.
Similar trends also occurred in Northeast Asia even though price development gives a slightly better picture when compared to price movement on CFR Southeast Asia. According to SSESSMENTS.COM pricing database, ethylene prices in January were over $700/ton with peaks at $840/ton at the end of that month. On April 15, prices slumped to between $428-434/ton in CFR Northeast Asia. Despite the market price hovers above $400/ton threshold in Northeast Asia, market talks have it that deals were concluded at $400-430/ton at the beginning of the week commencing April 13 and towards the mid-week, the deals reported were at $385/ton, all on CFR China basis.
SSESSMENTS.COM noted several factors that drive ethylene prices down. On April 15, Brent crude fell to a historic low of 18 years at the level of $19.87/barrel while West Texas Intermediate (WTI) crude down to $27.69/barrel. The global agreement to cut oil output in early of the week did not affect price positively as oil storage continued to fill-up, with the US recording a rise in crude inventory of 19 million barrels last week which is the largest in US history. At the same time, demand still stagnates with the International Energy Agency forecasted world oil demand to suffer the biggest drop ever. In 2020, the estimated drop in demand is 9.3 million barrels a day. Since the start of the year, price of crude has fallen by over 60%. ConocoPhillips, the largest U.S. independent oil company and a major shale producer in Texas announced on Thursday (April 16) it would slash planned spending 35%, cut oil production and suspend its share repurchase program to weather the collapse in crude prices. The company cuts US oil output by 30%, the largest so far.
As the situation worsened, more and more oil/chemical companies started cutting their budget ceilings in response to continuous low commodity prices and weak demand. Saudi-Aramco which at the end of 2019 recorded a breakthrough by releasing shares worth $25.6 billion in the Saudi Arabian stock market (Tadawul) was unable to produce normally after the shock caused by an incident after friction between Iran and the United States, followed by the Coronavirus pandemic. Aramco will cut the budget ceiling from $35-40 billion to $25-30 billion. Measure from one of the largest oil company then emulates by other companies such as ExxonMobil (cutting up to 30% of capex to $23 billion), Shell (saving up to $20 billion down from the planned $25 billion expenditure), and Total (setting spending under $15 billion to save more than $3 billion).
Demand undoubtedly will be difficult to recover as Coronavirus continues to ravage the world economy. The COVID-19 cases reached 2 millions on April 16 and kept climbing while social distancing practices led to almost half of the world's population under lockdown. The International Monetary Fund (IMF) with the World Bank has calculated the scenario where the world economy will decline by 3% if recovery can take place starting in the second half of the year. If things do not improve until the year ends, the economic contraction can reach 6-8% which will become a burden when recovery takes place in 2021.
The World Trade Organization also said that global trade would shrink by between 13-32% this year. SSESSMENTS.COM in early March reported that ethylene exports in the Asia region continue to be subdued as demand for ethylene derivatives weaken after downstream polyethylene (PE) and polyvinyl chloride (PVC) industries reduced their production as a result of slow demand for resins and related end products. Buyers are not interested in restocking as outlook shows that prices can still drop. This sentiment is supported by the influx of supplies from regional crackers plus the arrival of ethylene products from deep-sea sources.
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