Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Ethylene Market Outlook Considering the Impact of COVID-19
10 September 2020
With the planning cycle underway for several industry
participants, it is an opportune time to review the outlook for the
olefins markets for the next few years. The uncertainty that
surrounds the industry given the pandemic crisis makes it even more
important to understand what the future may hold. The quantitative
work behind the
2021 World Analysis - Ethylene is complete, and a revised view
of the supply and demand outlook considering the impact of the
COVID-19 pandemic is now available to clients of this
service.
Introduction
The new decade started on a challenging note. Global GDP is
expected to contract by 5.6% in 2020, caused largely by the rapid
and uncontrolled spread of COVID-19 globally in the first half of
2020. Most countries had to lock down, halt business activity, and
impose strict social distancing measures. Air, sea, and road travel
have been severely restricted, decreasing demand for transport
fuel; leisure travel has been almost non-existent as countries have
closed their borders, especially for air travel. Adding to the
challenge in 2020 is extreme price volatility across the
petrochemical chain, starting from the crude oil market. The crude
oil market has been extremely volatile due to both a demand shock
from the pandemic and a supply shock in March and April as Saudi
Arabia increased its production and slashed its prices amid
disagreements among OPEC+ members regarding production cuts. As of
May, OPEC+ members agreed upon and largely adhered to production
cuts, and oil prices started to recover from the previous lows.
However, several downside risks continue to weigh on the market,
including high crude oil inventories accumulated in the first half
of 2020, fears that a second wave of COVID-19 infections may limit
the recovery in global refined product demand, and continued
political tensions between the United States and mainland
China.
Historically, global demand for ethylene has grown at a multiple of
global GDP growth. However, the relationship between ethylene
demand growth and economic growth is becoming less straightforward
these days as ethylene demand to GDP elasticity is being diluted by
the increasing influence of the technology and services sector on
GDP growth and the correspondingly lower impact of manufacturing.
Also, there has been a strong push toward sustainability and
recycling, so some ethylene demand has been replaced by recycled or
natural materials (paper, glass, etc.). This is resulting in lower
multiples to GDP growth, especially in developed countries. Despite
the sharp contraction in global GDP growth, estimated global demand
for ethylene is projected to grow by 1% to approximately 165
million metric tons (mt) in 2020. Demand loss from some derivatives
such as aromatics and the vinyls chain has been offset by demand
growth in other sectors, such as polyethylene (PE). Demand for
monomers going into PE has been boosted by increased requirements
from the packaging sector and less emphasis on using single-use
packaging during the pandemic; the low crude oil prices in the
first half of 2020 also supported restocking and virgin PE
demand.
Global capacity addition has
been uneven across global regions, influenced by infrastructure and
port facilities, feedstock competitiveness, economic growth, and
demand. Asia and the Middle East have been leading new ethylene
capacity addition in the past decade, and Asia—particularly
mainland China—will continue to do so in the next decade. The
United States has also invested heavily in new cracker projects in
recent years due to an ethane feedstock advantage; approximately
7.5 million mt of new ethylene production facilities were added in
2017-19, and capacity totaling approximately 7 million mt is
expected to come onstream in 2020-22. Despite some delays due to
the COVID-19 pandemic, most new cracker projects are going
ahead—especially in Asia, where approximately 22 million mt of
new capacities are likely to start up in 2020-22. Referring to the
Global Ethylene Demand Growth chart, the COVID-19 pandemic has
caused demand growth to be negative across various regions, but
this is more than offset by growth observed in mainland China.
Globally, demand is estimated to grow by approximately 1.5 million
mt in 2020; it is forecast to grow by approximately 4 million mt in
2021 and more than 6 million mt year on year in 2022-25. Referring
to the Global Operating Rate and Net Ethylene Capacity Addition
chart, IHS Markit forecasts global operating rates to fall from
approximately 89% in 2019 to 85% in 2020 and to subsequently hover
at the low end of the 80-89% range until 2025 as global capacity
addition is expected to outpace demand growth in the short term.
Operating rates are forecast to rise to the high end of the 80-89%
range toward 2028-30.
Asia
The emergence of lower-cost coal to olefins (CTO) and methanol to
olefins (MTO) technologies to produce light olefins starting from
around 2012-13 came at a time when crude oil and naphtha prices
were close to peak levels. As a result, in the years that followed,
new capacities in mainland China were dominated by CTO and MTO
while interest in traditional steam cracker projects was deferred
due to weaker project economics. However, the tide has shifted
against MTO and CTO technologies due to the current relatively low
crude oil and naphtha prices since the collapse at the end of 2014.
The industry also recognizes that both CTO and MTO technologies
have their own sets of challenges. CTO technologies are coming
under increasing scrutiny in mainland China due to environmental
reasons, carbon emission, and high CAPEX while MTO technologies are
mainly under pressure from economics. As such, some new MTO and CTO
projects have either delayed commercial operations or been
cancelled in mainland China. In the long term, however, CTO and MTO
projects are not expected to disappear completely as coal
chemicals—together with coal to liquids or coal to
gas—could be an alternative supply source from a national
energy security perspective.
Meanwhile, steam cracker projects have regained prominence due
to both environmental and economic advantages. In mainland China
and South Korea, the two countries that are leading new cracker
expansions/investments, most new projects allow for the use of both
naphtha and LPG as feedstocks. However, naphtha is still the
largest feedstock for crackers, accounting for approximately 78% of
total steam cracker feedslates and 67% of total ethylene feedstocks
in 2020 in Northeast Asia. Over the next 10 years, naphtha is
expected to remain the dominant source of feeds in Northeast Asia,
but increasing new investments will be seen in lighter and also
flexible feedslate crackers that allow more gas oil cracking as new
refinery-cracker integrated investments come onstream. By 2030,
naphtha will account for approximately 70% of total steam cracker
feedslates and 60% of total feedstocks in Northeast Asia. Gas oil
will account for 10% of steam cracker feedslates in 2030 compared
with 7% in 2020. Ethane, propane, and butane combined will account
for 23% of steam cracker feedslates in 2030 compared with 16% in
2020.
LPG production in the United States has continuously increased
since 2015, and the country became the largest LPG exporter as of
2018. The increase in LPG supply from the United States gives
several steam crackers in Northeast Asia more flexibility to crack
lighter feedstocks. It has also incentivized new steam cracker
investments to accommodate flexible feeds, which allows for
cracking of lighter feedstocks. In mainland China, most crackers in
the coastal area have a certain capability to crack light
feedstocks, such as propane and butane. There were also several
ethane gas crackers under construction and in the planning
phase—especially along the coastal area—using US-origin
ethane as feedstocks, but most of these projects have been stalled
or cancelled due to the current low crude oil price environment and
high political tensions between the United States and mainland
China. However, one pure ethane cracker in East China, Satellite
PC, has almost completed construction and is likely to come
onstream within the next two years, along with its integrated
derivatives. There is also an increasing trend in new crackers
integrated to refineries in South Korea, such as GS Caltex, Hyundai
Chemical (a joint venture of Hyundai Oil Bank and Lotte Chemical),
and S-Oil, allowing more use of gas oil in the cracker feedslates.
Asian crackers are becoming more versatile to remain cost
competitive, especially with capacity growth outpacing demand and
with increased exports of competitive ethylene and derivatives from
integrated complexes in the United States. A more detailed analysis
of Northeast Asian supply and demand trends, as well as trends for
other regions globally, can be found in the 2021 World Analysis -
Ethylene book.
Trade
International trade of ethylene monomer will remain quite limited
overall compared with its derivatives owing to high freight costs
associated with transporting refrigerated liquids. However, this is
still necessary to maintain outlets for ethylene in regions that
have imbalances in production and consumption of ethylene, and with
crackers operating at high rates due to high margins. In 2019, spot
cargoes from various origins—including the Middle East, Europe,
and Southeast Asia—have been shipped to Northeast Asia due to
tight supply in the region and workable pricing. Furthermore,
sluggish sales of key downstream PE have resulted in several
integrated Asian producers offering spot ethylene monomer to
maintain high cracker operating rates. In 2020, more ethylene
monomer from the United States—both for term contracts and spot
when arbitrage is open—is expected to be shipped to Northeast
Asia with the new Enterprise export terminal in operation, but
volumes are fluctuating throughout the year. When oil and naphtha
prices collapsed in March and April this year, the cash cost of
naphtha-based Asian and European crackers fell drastically and was
even negative at one point as by-product credits could offset
feedstocks and production costs. This sharply decreased arbitrage
spot exports of ethylene from the United States as ethane crackers
moved higher on the cost curve, but term shipments continued to
Asia. As the naphtha price increased from May and arbitrage opened
from the United States to Asia in the second quarter, several spot
cargoes were concluded, and large quantities are expected to arrive
in Asia in the third quarter of 2020. However, in August and
September, arbitrage has closed again as US ethylene spot prices
have soared amid prolonged outages of some crackers and the impact
on Hurricane Laura in late August.
Throughout the forecast period, most of the ethylene traded
across international borders remains in the form of derivative
chemicals, including PE, ethylene glycol, styrene, and vinyls due
to much lower transportation costs. IHS Markit tracks the "net
equivalent" trade volume globally, which is the total amount of
ethylene contained in the derivative trade. Shipped as liquids or
bulk solids, these ethylene derivatives are far less expensive to
transport than ethylene monomer.
Despite slower economic growth and aggressive investments in new
ethylene/derivative capacities to boost self-sufficiency, mainland
China will continue to dominate ethylene derivative imports. Other
markets in the Northeast Asian region, including South Korea,
Japan, and Taiwan, remain net exporters throughout the forecast
period. Ethylene equivalent exports from the Middle East have
increased rapidly as new capacities allow Middle Eastern producers
to increase PE and ethylene glycol exports to Asia, mainly
targeting mainland China, although shipments are also going to
other regions such as Europe. Exports of ethylene derivatives from
the United States to global markets are expected to increase over
the forecast period as new steam cracker and derivative capacities
are brought online in the next few years, taking advantage of the
low-cost ethane feed available. Meanwhile, exports of ethylene
derivatives from other parts of Asia (Southeast Asia and other
Northeast Asian markets) will face pressure as these regional
exporters become less competitive compared with producers in other
regions with ethane feedstock cost advantages based on IHS Markit
crude oil forecasts.
In addition to global trade flows and supply and demand trends,
there are other key strategic issues that, in the opinion of IHS
Markit, will have a significant impact on global ethylene markets
over the next 10 years. These are discussed widely and in greater
depth in the
2021 World Analysis - Ethylene.
The 2021 World Analysis - Ethylene annual service provides
comprehensive analysis of and insight into the global markets for
ethylene. The process for developing an updated forecast involves
the analysis of all derivative sectors with a country-by-country
analysis of demand trends, taking into account the economic,
political, and legislative environment. This rigorous approach is
taken to develop clear demand and growth prospects. From a supply
perspective, the developments in all major regions are analyzed,
with prospective projects included. This is based on the most
recent IHS Markit estimates for startup timing given feedstock,
engineering, and construction availability, as well as the current
progress of investments. Clients can also access the following:
The online capacity database, which is updated frequently
throughout the year
A 10-year supply and demand forecast for producing and
consuming countries and regions, which is updated twice during the
12-month service period<span/>
A 10-year price forecast for key benchmark prices, which is
updated every quarter
Detailed trade analysis
Access to IHS Markit ethylene experts globally is also included
in this 12-month service period.