Ethylene Market Activity in the 1990s

Abstract

Ethylene pricing and profitabillty has been on a roller coaster for the past 5 years, and it appears that the near term scenario will not change. Overly ambitious capacity building which occurred in the late 1970s, combined with industrial stagnation in the early 1980s produced overcapacity, miserable profits and the industry shakeout which was experienced in the mid 1980s. This was followed by a gradual but continuous increase in demand accompanied by no significant new capacity. The result was firm pricing, high capacity utilization, spot shortages and exceptionally good profitability between 1987-1989. These profits only encouraged producers to debottleneck existing capacity, and buyers to build ethylene inventory in the face of increasing prices. The net result this time was eroding margins during the second half of 1989, which have only temporarily been halted by bad weather and plant operating problems. Given this cyclic tendency in the business, we can predict how manufacturing economics will result from projected changes in the existing global supply and demand for ethylene. This can be used to estimate industry profitability, and hence selling prices once operating costs are determined.