Issue No.

1 / April 18, 2011

Kevin L. Boyle, Consulting
25835 Karen Rd
Katy, TX 77494-5559
832.283.3227
klbconsulting@consolidated.net.

Ethylene Markets Tight

Ethylene Margin by Feedstock
$/mT except Lt. Whole
NA ¢/lb Ethane Propane Butane LPG Naphtha Naphtha AGO
North America 23.2 24.1 19.4 22.3 6.3 NA 47.4
Europe -258 272 281 303 172 316 NA
Asia -1153 174 193 182 -797 52 NA
Middle East 931 644 719 889 -297 NA NA

North America
Ethylene market were tight in North America due to some planned and unplanned
outages. This pushed ethylene prices higher yet and may provide incentive to push
derivative markets up. However, major derivatives like polyethylene are still
bounded by demand.
The surge in oil prices makes heavier feedstocks much more expensive relative
to ethane and E/P cracking. The relative price of gas to oil is at 25:1.

Frac Spreads 4/18/2011 4/11/2011 Change

Europe
Ethane $ 6.56 $ 6.00 $ 0.56
Price in Europe continue to
Propane $ 11.50 $ 11.72 $ (0.21)
support production. High value
Butane $ 14.09 $ 14.59 $ (0.50)
associated with coproducts
Naphtha $ (0.55) $ (4.22) $ 3.68
makes ethylene production prof-
Crack Spread (3-2-1) $ 22.39 $ 14.00 $ 8.40
itable.
There does no appear to be any near term influence to push prices downward.
Consequently, European margins should continue to thrive for the time being.

Asia
Markets are tough in Asia. Traders have again been selling incoming imports
in the export market before they even reach the shore. High crude oil prices com-
bined with some restrictions in China have dampened demand in the region.

Middle East
While the Middle East continues to be wildly profitable, the region also con-
tinues to suffer from feedstock shortages and infrastructure problems. Operating
rates are higher, but still below 80%.

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 Light W.
$/mT except NA ¢/lb Ethane Propane E/P Butane LPG Naphtha Naphtha Return on Feedstock
Feedstock per lb of
North America Ethylene 26.6 33.9 28.8 38.7 35.8 50.7 NA
Coproduct Credit 10.3 58.1 24.7 69.8 62.8 111.0 NA
Net Cash Cost per lb
of Ethylene 35.6 34.7 35.3 39.4 36.5 52.4 NA
Net ¢ per lb
Feedstock 53.7 49.1 52.3 51.4 50.0 57.0 NA

Feedstock per mT of
Europe Ethylene 1396 988 1274 1037 1007 1206 969
Coproduct Credit 255 1396 597 1650 1498 2566 2319
Net Cash Cost per
mT of Ethylene 1808 1278 1649 1269 1275 1378 1234
Net ¢ per lb
Feedstock 1402 1238 1353 1279 1254 1384 1172

Feedstock per mT of
Asia Ethylene 1970 962 1667 983 970 1355 1042
Coproduct Credit 313 1444 652 1634 1520 2298 2507
Net Cash Cost per
mT of Ethylene 2518 1191 2120 1172 1183 2298 2507
Net ¢ per lb
Feedstock 1304 1180 1267 1198 1188 1231 1173

Feedstock per mT of
Middle East Ethylene 82 434 187 440 437 850 NA
Coproduct Credit 151 797 344 940 854 1404 NA
Net Cash Cost per
mT of Ethylene 94 381 180 306 351 1322 NA
Net ¢ per lb
Feedstock 1011 818 953 835 825 859 NA

Ethylene $/mT 4/17/2011 4/10/2011 ∆

LyondellBasell 222 148 74
¢/lb 4/18/2011 4/11/2011 ∆ Borealis 51 -137 187
Chevron Phillips 17.2 22.0 -4.8 BP 167 82 85
Dow 30.9 37.2 -6.3 Dow 182 -55 237
Lyondell 24.4 30.6 -6.2 ExxonMobil -152 -254 102 The renewed
ExxonMobil 24.3 29.7 -5.5 Ineos 174 -68 242 MarketWorks
Shell 20.1 24.4 -4.3 Polimeri Europa 200 -8 209 adds to the
Ineos 24.4 30.9 -6.5 Repsol 201 139 62 previous ver-
Westlake 25.2 32.8 -7.6 Shell 178 -45 223 sion with
Nova 47.1 53.7 -6.6 Total S.A. 132 61 71
more detailed
Ethylene $/mT 4/17/2011 4/10/2011 ∆ data and a
Japan -70 14 -83 broader
Taiwan -250 -252 3 product pers-
Korea 152 224 -72 pective, and a
China -251 -172 -79 more global
SE Asia -242 -172 -70
view. Check
India -89 -28 -61
www.klbcons
ultingservic-
es.com for a
full review of
coverage..

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 Ethylene--HDPE The return on feedstocks
in North America of 43%, indi-
cated by the horizontal Spar-
kline graph on the previous
Middle East
page, is a great reason to pro-
duce ethylene in the US. There
Asia have been four announcements of
new capacity to be built along
Europe the US Gulf Coast and conversa-
tions with all of the partici-
pants indicate that they are
North America
all likely to go forward. How-
ever, the addition of 2.5 mil-
$(200) $(100) $- $100 $200 $300 $400
lion tons of ethylene to the
U.S. market will require con-
tinued exports and, therefore,
some form of competition with
Propylene--PP the Middle East.
Also on the previous
page, indications are that pro-
Middle East
ducers are generally profita-
ble, even at the ethylene line.
Asian producers are marginally
Asia
profitable if integrated into
polyethylene, for example
Europe (graph at left). The European
producers are actually at the
North America point of making their money on
ethylene, not polyethylene.
$- $200 $400 $600 $800 This graph somewhat distorts
the loss on HDPE in Europe as
it represents commodity materi-
al, whereas much of the plymer
produced in Europe is higher
Styrene--GPPS priced specialty stock.
Still, the current situa-
tion for chemicals on a global
basis looks good. Demand has
Asia softened slightly in Asia as
the high price of crude cuts
into budgets. U.S. demand has
Europe
improved, but still lacks any
spark from the housing market
which is looking at another
North America
year of poor results. All de-
rivatives appear priced to gen-
$- $200 $400 $600 $800 erate profits in any region.

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North America 2011 The price forecast for the North
$ Per … Q1 Q2 Q3 American market shows that what ever
Ethane 0.66 0.75 0.76 damage there is to be done is likely to
be seen in the second quarter. Higher
Naphtha 2.28 2.55 2.58
feedstock prices correspond to higher
Ethylene 0.50 0.65 0.67 crude oil prices. Even though U.S.
Propylene 0.70 0.81 0.82 production leans heavily toward light
Benzene 4.12 4.06 4.09 feedstocks, end product prices are in-
Butadiene 1.01 1.10 1.10 fluenced by crude.
Styrene 0.69 0.70 0.72 The U.S. still exports a signifi-
cant portion of its production of ethy-
MEG 0.65 0.60 0.58 lene, in one for of another. Those ex-
Phenol 0.73 0.82 0.85 ports compete against naphtha-based
MTBE 3.12 2.85 2.90 pricing. This allows domestic prices
Isobutane 0.97 0.80 0.86 to float higher as buyers compete for
HDPE 0.64 0.70 0.72 the marginal pound. The dramatic dif-
ference between spot and contract pric-
LLDPE 0.67 0.74 0.76 es has narrowed. So, while ethylene
LDPE 0.84 0.82 0.83 costs are based on natural gas, down-
PP Homo 0.82 0.85 0.85 stream product prices are influenced by
PVC 0.65 0.72 0.76 crude oil.
Caustic Soda 385 470 500 More specifically, the margin be-
tween feedstocks and ethylene should
GPPS 0.78 0.80 0.82
remain steady with the first quarter.
PET 0.89 1.03 1.04 Spreads between ethylene and polyethy-
WTI 94 112 113 lene should hold up in both the second
Natural Gas 4.18 4.44 4.57 and third quarter. Therefore, major
producers should see the same kind of
operating margins in the next two quar-
ters as experienced in Q1.
North American Integrated Producer Margin
The vinyls chain is in an inter-
Industry Ethane Naphtha
esting predicament. Georgia Gulf has
Ethylene 10.0 11.0 3.2
declared force majeure on PVC shipments
LLDPE 27.7 28.7 20.8
due to an inability to buy enough ethy-
LDPE 36.7 37.6 29.8
lene and problems at their Plaquemine
HDPE 25.1 26.1 18.2
chlor-alkali plant. This led to quick
PP 36.2 -- 38.1
PVC 20.5 21.5 13.7
announcements in the industry of price
increases for PVC and an immediate $50
per short ton increase in caustic soda
from OxyChem. GGC’s problems at Pla-
quemine may be fixed in reasonable
time, but this still leaves the problem
MarketWorks is produced by Kevin L. Boyle, of buying ethylene on the market. As
Consulting strictly for subscribers. The infor- long as other derivatives, like export
mation herein is based on proprietary mod- polyethylene, are showing good profit,
els and developed with the best information GGC’s ethylene shortage may be tougher
available in the market, at the time of publi- to cure than Plaquemines problems. One
cation. The publication is available each
thing to be sure of is that the mer-
week via email . Subscriptions are $900 per
year.
chant ethylene GGC or anyone buys will
not come cheaply.
For a subscription, please contact Kevin L. Butadiene prices have increased
Boyle at: from where they began Q1 and will add
Phone: (832) 283-3227 another 10¢ in Q2. Propylene prices
have increased as well, but exhibit
Email: klbconsulting@consolidated.net normal volatility and are in range.
Or visit: www.klbconsultingservices.com

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