Linear Alpha Olefins (LAO) Pricing Analysis
The relationship between LAO prices and olefins vary because a variety of LAO fractions are produced and some of these are in much higher demand than others. Each of these fraction has its own markets, supporting the variation in the LAO fraction prices. Overall, the LAO market does not have any transparency in pricing. The LAOs prices are not published and reference or benchmark prices are not available in the public domain. Historically, the pricing mechanism for most LAO fractions has been an ethylene-based formula of Ethylene*1.07 plus a conversion fee factor. The multiplier is intended to represent the ethylene efficiency of each LAOs producer. The market price is set by the average in process performance. The conversion factor value increase as supply tightens.
It is to be noted that LAOs pricing is largely related to following two things:
Length of contracts
Global players and large buyers such as DowDuPont generally prefer an agreement for a minimum tenure of 8-10 years. The companies have a long term price advantage. In comparison to other petrochemicals, the LAOs market is relatively undeveloped. A small capacity closure can lead to an imbalance. Though some alterations in the process conditions can be made to meet market demand. However, the imbalance is balanced by bringing a wide variation in the prices of the each of LAO fractions.
Pricing of LAOs will also be impacted by new production capacity, closure & maintenance and subdued demand for polymers like LLDPE and HDPE resins, raw material and any other new regulations. The LAOs are consumed in both developed and developing countries. Most of the LAO is used for products that require superior properties. Given the nature of the current LAO manufacturing processes and the limited number of producers, LAOs each fraction has its own supply-demand balance. Since the production of LAO, especially in for the full range LAOs, the prices of one fraction may escalate to other individual LAO fraction depending on the demand for each of the fraction.
The LAOs prices may vary for different fraction and with consideration of the specific feedstocks involved. Historically, the raffinate-based butene producers have set the market price. C10+ products will see pricing on an ethylene-based formula with adders of 50 to 70 c/lb based on individual fraction supply / demand in the marketplace.
The higher LAOs Pricing basis can be roughly assumed as
C10 Price = (Ethylene price X 0.94) + factor (US$ 190 / ton)
C12-14 Blend Price = (Ethylene price X 1.08) + factor (US$ 93 / ton)
C16-18 Blend Price = (Ethylene price X 1.25)
C20 Blend Price = (Ethylene price X 0.64)
The average LAO prices in the Asia-Pacific region for the purpose of value market calculation has been considered as
Butene-1 has been around $ 0.9/ kg
Higher LAOs has been around $ 1.2 / kg
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