Production Cost Of Ethylene

This is the position of a naphtha cracker, which produces at the same time ethylene and propylene, as well as various other co-products. These other co-products can be given a value by reference to other markets (e.g. pyrolysis gasoline by reference to motor fuel), but that leaves two products , ethylene and propylene, to which must be assigned a single set of costs. The approach taken in the graph above is to take the price ratio of propylene to ethylene as that which is observed in the market in question at the time decided. In other words, the P/E price ratio is taken as an exogenous variable decided by the market. Historically the P/E price ratio tended to be close to 0.7, but in recent years that ratio has tended to rise, even exceeding 1.0 in certain markets, due to the rising importance of propylene’s main derivative, polypropylene.