Geopolitical conflicts continue to disrupt the market, pushing Asian ethylene prices above $1135 per ton

According to the latest data from S&P Global Platts, affected by the ongoing geopolitical conflict between the US and Iran and the blocked flow of raw materials through the Strait of Hormuz, the Asian ethylene CFR spot price climbed to $1,135 per ton on September 1, hitting the highest level since May 18 this year. The current price is nearly 62% higher than the pre-conflict benchmark level of $695–710 per ton, and the Northeast Asian ethylene market has remained strong under the geopolitical supply shock.

Prior to the outbreak of the conflict, the Asian ethylene market had long been in a state of structural oversupply, and the industry's profit margin continued to be under pressure. In February this year, the average spot price of Asian ethylene was only $702 per ton, and the ethylene-naphtha spread was only $94 per ton, far below the break-even line of $250 per ton for integrated plants, and most production enterprises were stuck in meager profits or even losses. At that time, the market was in loose supply and demand with thin profits, and the overall operating situation of the industry was sluggish.

After the conflict between the US and Iran broke out on February 28, the market pattern completely reversed. As the core supply channel for Asian naphtha, the Strait of Hormuz undertakes 70% of Asia's raw material supply. After the conflict broke out, naphtha transportation through the Strait basically came to a halt, directly impacting the raw material supply of cracking units in Northeast Asia. Steam cracking units in Japan, South Korea, Taiwan, China and many places in mainland China were forced to significantly reduce their operating rates, some enterprises declared force majeure, and the market supply contracted rapidly.

Affected by the raw material supply disruption, Asian ethylene prices have fluctuated drastically this year. The ethylene CFR price was only $750 per ton on March 2, and soared to $1,500 per ton by March 30-31; the ethylene-naphtha spread also fluctuated sharply synchronously. The spread once fell to $34.5 per ton on March 2, then rebounded rapidly along with the surge in ethylene prices, climbing to the annual peak of $470 per ton on April 21. The geopolitical situation eased briefly in June, and the market pulled back quickly. In early July, Asian ethylene prices fell back to $810 per ton.

Amid repeated geopolitical disturbances, a rare spread inversion occurred in the market again in July. Affected by the single-day surge of $112.5 per ton in raw material naphtha, the ethylene-naphtha spread fell to $17.75 per ton on July 22, turning negative briefly. This was the second spread inversion after March 9 (-$41.5 per ton) this year, and industry profits were squeezed again.

The latest price surge in September is not driven by the recovery of downstream demand, but by the extreme shortage of spot supply. At present, the demand for downstream polyethylene and polyvinyl chloride markets in Asia continues to be weak, and the overall terminal consumption is sluggish, but the operating rates of regional cracking units are generally restricted: the operating rate of South Korean cracking units only remains at 65%-85%, Thailand's Rayong Olefins Plant has been shut down continuously since mid-March, Formosa Plastics' third cracking unit in Taiwan, China only just restarted after being shut down for half a year, and multiple units in mainland China continue to operate at low loads, resulting in a serious shortage of spot market circulation. Coupled with the fact that multiple domestic tendered cargoes failed to be delivered in full in the early stage, the spot shortage situation further worsened.

Price data shows that Asian ethylene prices continued to rise from $1,000 per ton at the end of July, broke through $1,100 per ton on August 31, and rose another $35 per ton on September 1 driven by the strengthening of international crude oil. Brent crude oil futures rose $1.68 per barrel that day, closing at $92.29 per barrel, and the strong cost side supported the rise of ethylene prices. As of September 1, the ethylene-naphtha spread rebounded to $286.5 per ton, breaking through the $250 per ton break-even line for integrated plants, but it still did not reach the reasonable profit range of $300–350 per ton for non-integrated plants. Only efficient integrated production enterprises can achieve stable profits, and the overall industry profit remains thin.

For the future market, the market generally predicts that the spot supply of Asian ethylene will continue to be tight in September, and traders generally tend to sign formula-priced contracts to avoid the risk of price fluctuations from fixed pricing. The core variable of the current market still focuses on geopolitics: if the transportation through the Strait of Hormuz resumes, the recovery of raw material supply will directly trigger a sharp回调 of ethylene prices, replicating the June market trend; while under the background of continued geopolitical conflicts, the market will continue to price the risk of supply disruption, and the high price pattern of ethylene is expected to continue.