GLOBAL ETHYLENE MARKET ANALYSIS

Market Challenges And Opportunities

Global Ethylene Market Restraints:

Fluctuations in crude oil prices: Fluctuations in crude oil prices have a significant influence on the global ethylene market. Ethylene is an essential petrochemical that is primarily produced from crude oil and natural gas. It is used to manufacture numerous important plastics and chemicals. When crude oil prices rise or fall sharply, it directly impacts the production costs and pricing of ethylene.

In recent years, from 2020 to early 2022, crude oil prices were fairly volatile owing to multiple factors like decreased demand during the COVID-19 pandemic lockdowns, output cuts by OPEC+, and geopolitical tensions involving major oil producers. The fluctuating crude prices presented both opportunities and challenges for ethylene manufacturers. In 2020, lockdowns had initially caused a steep decline in crude prices, making ethylene production cheaper. However, demand was also low as economic activities were slowed down. Later in 2021, as demand picked up with economies reopening, crude prices rebounded and rose significantly, increasing costs for ethylene companies. This impacted margins and pricing decisions.

Counter balance: Improving energy efficiency in ethylene production processes can lead to cost savings, making companies less exposed to the impact of raw material price changes.

Environmental concerns regarding emissions: Environmental concerns over emissions have indeed emerged as a major restraining factor. With mounting pressure to curb greenhouse gas emissions globally, industries that produce significant amounts of emissions during their operations are facing challenges. The ethylene production process relies heavily on cracking of hydrocarbons such as ethane and propane, which results in the release of carbon dioxide and methane. Both these gases are known to be major contributors to global warming.

Several studies conducted by independent research institutes and reports by inter-governmental groups like IPCC Intergovernmental Panel on Climate Change have highlighted the need to reduce emissions from the petrochemical industry in order to achieve international climate change goals. For instance, a 2021 report by the UN Environment Programme states that the chemicals and petrochemical sector alone accounted for 2.76 Gt of carbon dioxide equivalent greenhouse gas emissions in 2018, which is nearly 8% of global emissions. It recommends strategies like deploying carbon capture and storage technologies as well as switching to less carbon-intensive feedstock to lower emissions from this sector.

Faced with such evidence and policy pressures, ethylene producers are finding it increasingly difficult to expand capacities or build new plants without making big investments in carbon reduction. Major economies like the European Union and China have unveiled regulatory mandates and carbon pricing mechanisms targeting industries that fail to transition to low-carbon business models. While the demand for ethylene remains robust driven by downstream plastic manufacturing, the regulatory headwinds pertaining to emissions can act as a deterrent to higher investments in this sector. Some companies have even postponed or cancelled billion-dollar ethylene plants owing to uncertainties around emission regulations. Unless extensive efforts are made to transition to cleaner production methods, environmental concerns will continue restraining the long-term growth trajectory of the global ethylene market.

Counter balance: Obtain environmental certifications and comply with global standards such as ISO 14001, which demonstrates commitment to environmental management and sustainability.

Global Ethylene Market Drivers:

Growing demand for renewable ethylene: The demand for renewable and sustainable sources of ethylene is growing significantly across the globe. Traditionally, ethylene has been produced from petroleum or natural gas, however, there is an increasing focus on producing it via renewable means such as bioethanol. This shift is being driven by the need to reduce dependence on fossil fuels and lower the carbon footprint of operations. Several companies are investing in bio-based technologies to produce ethylene through the fermentation of sugarcane, corn, or cellulosic biomass.

The availability of affordable bio-based feedstock coupled with technological advancements will be crucial for scaling up the renewable ethylene production. Several pilot plants are expected to start operations in 2022-2023 across major markets which will provide a strong proof-of-concept for bio-ethylene. This is anticipated to attract further capital into this space and accelerate commercialization efforts. The evolution of a well-established renewable supply network will strengthen energy security and independence of these economies. It will also foster greater synergies between the petrochemical and agricultural industries going forward. The rising demand as well as the multiple benefits of bio-based production is likely to sustain high growth momentum of the overall global ethylene market in the medium to long term.

Demand from polyethylene industries: Polyethylene is widely used across many industries like packaging, construction, automotive, and consumer goods. It has become integral to modern life due to its versatility and resilience. Packaging alone accounts for over half of the global polyethylene consumption as it is used to make plastic grocery bags, food, and consumer product packaging films, bottles, containers, and others. The packaging industry has seen tremendous growth in the past few years driven by the expanding e-commerce sector, which relies heavily on plastic packaging to protect and ship goods. According to the United Nations, global e-commerce sales jumped from US$ 26 trillion in 2019 to over US$ 29 trillion in 2021. The available data suggests that the global e-commerce sales have been growing steadily, with a projected increase of 16.8% in 2021 to US$ 4.921 trillion, up from US$ 4.213 trillion in 2020.

Global Ethylene Market Opportunities:

Increasing investments in research & development activities: With the rise of the sustainable and clean energy movement globally, there is an increasing emphasis on innovation and transformation in the ethylene market. Significant investments in research and development can help companies tap into new opportunities and position themselves for future growth. R&D activities allow companies to develop more efficient production processes that reduce environmental impact as well as derive value from waste and byproducts. For instance, the European Union has set ambitious targets for reducing greenhouse gas emissions and increasing the share of renewable energy by 2030. This puts pressure on petrochemical industries to adopt greener technologies.

R&D investments can help ethylene producers transition to more sustainable feedstock and production methods. Several countries are supporting the development of bio-based technologies that utilize agricultural residues or municipal waste to produce ethylene. For example, the Ministry of New and Renewable Energy, government of India has allocated approximately US$ 280 million for 2020-21 to encourage private sector participation in advanced biofuel research that could yield bio-based pathways for ethylene in the future. Similarly, ethylene producers may explore carbon utilization opportunities such as converting waste carbon into higher value products through electrochemical and biochemical processes.

Growing demand from emerging economies: The growing demand from emerging economies can present significant opportunities for the global ethylene market in the coming years. Countries like India, China, Brazil, Mexico, and others are experiencing rapid industrialization and infrastructure growth which will drive higher consumption of ethylene and ethylene-based products.

Ethylene is a crucial petrochemical used in the production of important commodities like polyethylene, polyester, polyvinyl chloride, and ethylene glycol. As emerging nations look to improve their manufacturing capabilities and develop new industries, the need for such ethylene-derived chemicals is rising considerably. For example, polyethylene is extensively used in packaging, construction materials, and consumable goods. Its demand rises in tandem with the growth of consumer markets in emerging economies. Polyester is also seeing stronger offtake as textile and clothing manufacturing increases its footprint globally.

Furthermore, government initiatives focused on infrastructure expansion will create additional opportunities. Massive investments are being made across developing regions toward building new roads, rail networks, pipelines, telecom infrastructure, housing units, and others. All such construction activities involve extensive usage of ethylene-based commodities like polyvinyl chloride (PVC) for pipes and wires, polyethylene for geotextiles and liners, polyester for fiber reinforcement.

For instance, according to the World Bank data, India plans to invest over US$ 1.4 trillion in infrastructure during 2023-2030, that can substantially boost polyethylene and polyvinyl chloride consumption during this period.