PetroChem Wire: June NYMEX Ethylene Prices Drop

Building block chemical's two-month, twenty percent price dip tracks crude

May 25, 2010, 09:25 ET from PetroChem Wire

HOUSTON, May 25 /PRNewswire/ -- U.S. ethylene prices fell in May, with the June New York Mercantile Exchange's (NYMEX) cleared ethylene settling and expiring at $0.40 per pound. The contract, which began trading in July 2009, settled for May last month at $0.50 per pound. Ethylene trades in 100,000-pound lots per contract on the NYMEX's Clearport system and is a building block chemical used in the production of plastic resins and a variety of solvent chemicals, all used in major consumer manufacturing products.

In the overall cash markets, June ethylene has been trading in the $0.40 per pound range throughout all of May, starting the month with a swift drop from April levels, according to PetroChem Wire (PCW), a daily U.S. petrochemical industry newsletter. PCW's cash market assessments are used to settle the cleared NYMEX contracts.

Typical ethylene deals are a minimum of 3 million to 5 million pounds in size, or 30 to 50 lots per trade. So far in May, more than 150 million pounds of ethylene have traded in the spot market.

"The ethylene market started the month of May at sharply lower levels than where it traded in April. While this is in line with crude, it also reflects ethylene's unique supply and demand relationship," said Kathy Hall, executive editor of PCW. "May also saw ethylene trading out through the end of 2011, which shows an increased sensitivity to risk management in the ethylene chain, particularly as it relates to polyethylene."

While ethylene has directionally followed energy markets during May, its 20% price drop between May and June contract settlements has been more comparable to crude than to natural gas. The NYMEX WTI futures contract dropped 18.5% from May to June. The June natural gas contract, which expires May 26th, has been trading around $4/mmBtu, a level just 5% down from the May contract.  Ethylene can be produced using raw materials that are derived from both crude oil and natural gas, such as ethane. Ethylene has been far more volatile than ethane. Ethane has fallen about 5 cents per gallon since early April, to around 53 cents per gallon--a drop of less than 1%.

Maximum steam cracker operating rates in the U.S. Gulf remained slightly below 90% during May. Maximum operating rates were at 89.2% for steam crackers in Texas and 91.8% in Louisiana, a combined rate for the region of 89.9%. By comparison, maximum steam cracker operating rates a year ago were around 80%, and spot ethylene was trading at $0.22 per pound.

The PetroChem Wire is a daily newsletter serving the petrochemical industry. It counts every major petrochemical and refining company among its readers, as well as many major manufacturing concerns, global conglomerates, industry consultants, equity analysts and government agencies.  

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