Ethylene: Cycles

Inside the capacity glut squeezing Asian crackers

Ethylene margins follow a long capacity cycle. Crackers take four to five years to build and are added in waves when margins are high, then run below 85% for years. The floor is set by cash cost of the marginal naphtha cracker in Asia or Europe; when naphtha margins stay negative, as in 2023-2025, older plants close. The ceiling is set by outages and feedstock shocks: hurricanes in the US Gulf, the 2021 Texas freeze and the 2026 Strait of Hormuz disruption all spiked prices. China's self-sufficiency drive since 2019 has made the current trough unusually long.

Asian spread = CFR NE Asia ethylene minus CFR Japan naphtha, per tonne. The break-even level depends on the basis: S&P Global Platts cites a typical break-even of about $250/t for integrated and $350/t for non-integrated producers (Sep 2022), while ChemOrbis's December 2025 figures (naphtha $560-580/t, break-even ethylene about $800/t) imply a cash break-even of about $220-240/t. Prices sat in the $700s, below break-even. US integrated ethane-to-PE margin averaged about $580/t in early 2026 (Argus).

Booms and busts

1. 2008-2009

   Financial crisis demand collapse just as Middle East ethane crackers started. Asian prices fell by more than half in months.

   Asian ethylene fell from about $1,400/t mid-2008 to about $500-600/t in December 2008 (indicative, ICIS historical)

2. 2021-2022

   Post-Covid demand rebound plus the February 2021 Texas freeze that shut most US crackers, then the 2022 oil spike after Russia invaded Ukraine.

   NE Asia ethylene above $1,100/t in 2021-2022 (indicative, ICIS); naphtha cracker margins turned negative by 2022

3. 2023-2025

   Record Chinese additions pushed global utilisation to 79% (2023). Asian naphtha crackers lost money three years running; Europe closed over 4 Mt. US prices hit three-year lows.

   Asian naphtha cracker margins -$195/t (2023), -$170/t (2024), -$158/t (2025 to Aug); US ethylene about $364/t in Nov 2025 (Argus)

4. March-September 2026

   US-Israeli strikes on Iran from 28 February all but closed the Strait of Hormuz: oil flows fell below 1 mb/d in April. Flows recovered only partly after the 8 April ceasefire and 17 June memorandum, to about 82% of pre-war in October, with renewed attacks (Reuters/Kpler). Gulf naphtha and polymer exports were cut; QatarEnergy, Borouge and Sadara halted or cut cracker output (ChemOrbis, Apr 2026).

   Asian naphtha margin over Brent rose from about $108/t to above $400/t (LSEG via Hydrocarbon Processing, Mar 2026); European ethylene contract up €35-55/t in March and several hundred euros in April (Plastics Today, May 2026); Brent peaked at $118/bbl in March (Reuters)

What drives the cycle

• Chinese capacity additions. China adds 7-11 Mt of ethylene a year in 2025-2027, more than world demand growth, so its build rate sets global utilisation.
• Crude and naphtha versus gas prices. The oil-to-gas ratio decides how far ethane crackers undercut naphtha; ethane was $100-150/t cheaper than naphtha in 2025 at $60/bbl crude.
• Middle East shipping and geopolitics. About $20-25 billion of petrochemicals cross the Strait of Hormuz a year (Rabobank via Hydrocarbon Processing 2026); disruption lifts Asian prices quickly.
• European closures and carbon cost. Closures of 15-20% of European capacity and tighter EU ETS benchmarks remove high-cost supply and shift Europe to imports.
• Polyethylene demand. Packaging demand tracks consumer spending; any slowdown in China flows straight into PE and ethylene prices.

Metrics to track