Chemicals · Commodity Chemicals
Chemical Industry Cost Curves
Feedstock as the primary axis of the ethylene cost curve; oil-vs-gas shifts; naphtha co-products; marginal producers idle first in downturns.
Selborne Research · Commodity Chemicals coverage: 7 guides, 6 company profiles, a primer and Excel model
Educational analysis for professional use. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
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Feedstock Sets the Order
A cost curve lines up every producer of a product from cheapest to dearest per tonne. For ethylene, the building block of polyethylene (PE), feedstock decides most of the order. A US Gulf Coast cracker running ethane and a European cracker running naphtha make the same molecule at very different costs.
The curve answers one question in a downturn: which plants cut output first when spreads compress? The price is set by the last plant needed to meet demand, the marginal producer, and the high-cost plants beyond it idle.
Ethylene: Light Feed vs Heavy Feed
A tonne of ethylene takes 1.25 tonnes of ethane but 3.09 tonnes of naphtha. Ethane is a natural-gas liquid; naphtha is a light oil fraction from refining. So crackers on light feed sit at the low end of the curve when gas is cheap against oil, and heavy-feed units at the high end. In the US about 78% of ethylene was made from ethane in 2019 (US Department of Energy).
When global demand weakens, the high-cost naphtha units in Europe and Northeast Asia cut rates first. LyondellBasell has both kinds: ethane and other gas liquids in the Americas, naphtha in Europe.
Oil and Gas Prices Move the Ranking
When ethane, priced off gas, is cheap relative to naphtha, priced off oil, US producers widen their lead. When oil falls faster than gas, the lead narrows.
The long-run gas, ethane and naphtha prices used by the Selborne primer and its Excel model are on the ethylene spreads guide.
Co-Product Credits on Naphtha Units
Naphtha crackers also make propylene, butadiene and aromatics, which ethane crackers barely produce. The US Energy Information Administration (Today in Energy, Nov 2024) counts these co-product credits when it compares ethane and naphtha margins.
The credits rarely flip the ranking when ethylene is oversupplied, because a glut of ethylene does not lift the price of propylene. LyondellBasell put 2025 industry margins across its businesses about 45% below their 2013-22 averages (Q4 2025 earnings slides). The whole chain compresses and the high-cost units take the cut in output.
A Good Cost Position Still Earns Less in a Downturn
A low place on the curve keeps plants running; it does not protect the margin. FY2025 filings show both halves:
| Company | FY2025 filing | What it shows about the curve |
|---|---|---|
| Dow | Operating EBITDA $3,256M, below the <$6B trough line from its 2024 Investor Day | Puts about 80% of its cracking among the cheapest quarter of global plants, and earnings still fell |
| LyondellBasell | North American industry PE margin $580/t in 2025 against a $830/t 2013-22 average | A narrower spread cuts margins even at low-cost plants |
| Olin | ”Extended trough”; adjusted EBITDA $651.8M | Its cost is power and ethylene: about 76% of its electricity comes from gas or hydro |
| Westlake | ”Global overcapacity” in some of its commodity materials; adjusted EBITDA $1,144M (GAAP ($248)M) | Cheap ethane does not protect against a polymer glut |
| Methanex | Adjusted EBITDA $808M at $361/t realised | Gas-fed methanol ranks on gas cost |
| Celanese | Operating EBITDA $1,893M; Frankfurt vinyl acetate monomer plant idled, Singapore rates cut | Concentrates output on its lowest-cost Gulf Coast plants |
LyondellBasell’s segment rates for the fourth quarter of 2025 show how far output fell: ~75% in Americas olefins and polyolefins (its crackers ~90%) and ~75% in intermediates and derivatives.
Methanol and Acetyls Rank on Gas
Not every commodity chemical comes out of a cracker.
Methanex makes methanol from natural gas at every plant. After buying the methanol business of OCI, a Dutch chemicals group, in 2025 it has about 6.4 million tonnes of North American capacity (March 2026 investor presentation). It describes its assets as competitive across a wide range of methanol prices. Outside North America, its gas contracts add a share of any methanol price rise to a base price.
Celanese feeds its Acetyl Chain, which makes acetic acid and its derivatives, with carbon monoxide, methanol and ethylene. The methanol comes from its Fairway joint venture on the US Gulf Coast, so its cost axis is gas too.
Using the Curve in a Valuation
The curve tells you who keeps running in a downturn. It is the first of five steps to a value.
- Map the feedstock (ethane share, gas-fed methanol, Olin’s power and ethylene).
- Place the producer against the marginal plant (naphtha in Europe and Asia when ethylene is oversupplied).
- Apply long-run spreads (the spreads guide lists a set).
- Rebuild EBITDA for a normal year (mid-cycle); the mid-cycle EBITDA guide covers the company frameworks.
- Watch operating rates as the early warning, as the petrochemical cycle guide sets out.
Commodity Chemicals Sector Primer
Three hypothetical producers, in polyethylene, methanol and PVC, valued year by year as spreads recover from the trough, set beside the through-cycle multiple screen.
- 15 sections, from how a spread business earns to a year-by-year reversion DCF and leverage on mid-cycle EBITDA
- 42 pages
- an ethane-advantaged polyethylene producer, a methanol producer and a chlor-alkali and PVC producer
- 3 producer engines
- listed producers across the ethylene, vinyl, methanol and acetyls chains on filed FY2025 figures
- 6-company screen
The Excel model is the primer's cycle-normalisation valuation live across 12 sheets: three producer tabs (ethane-advantaged polyethylene, methanol, and chlor-alkali and PVC), each reverting its spread and utilisation from trough to mid-cycle through a ten-year free-cash-flow schedule with working capital and sustaining capex; a valuation summary setting each DCF beside the through-cycle multiple screen; cycle scenarios, a cost-curve position, a leverage screen on mid-cycle EBITDA and two live sensitivity grids. Change the spread, the WACC or the exit multiple and the value moves.
See what's in the Commodity Chemicals Sector Primer →£25 PDF · £59 with the Excel model · £159 for all three Chemicals industries
Frequently Asked Questions
- What is the petrochemical cost curve?
- The ethylene cost curve ranks the world's crackers by cash cost per tonne of ethylene, and feedstock decides most of the order. US Gulf Coast crackers running ethane, a natural-gas liquid, sit low when gas is cheap against oil. Naphtha crackers in Europe and Northeast Asia, which run an oil-derived feed, sit high and become the marginal plants in oversupply. Published yields show why: ethane turns 80-84% of its weight into ethylene, naphtha 29-34%.
- How does oil vs gas pricing shift cost-curve position?
- Naphtha prices track crude oil and ethane prices track US natural gas. When gas is cheap relative to oil, US ethane crackers gain margin over naphtha units; when oil falls faster than gas, the gap narrows.
- Do naphtha crackers have any cost advantage?
- Naphtha crackers make more co-products (propylene, butadiene, aromatics), and selling them offsets part of the lower ethylene yield. The US Energy Information Administration counts these co-product credits in its margin comparisons. When ethylene is oversupplied, though, the yield gap dominates and naphtha units cut rates before US ethane crackers. LyondellBasell runs ethane and other gas liquids in the Americas and naphtha in Europe, so it feels both sides.
- How do non-olefin chains fit the cost curve?
- Methanol ranks on the cost of its gas feedstock. After buying OCI's methanol business in 2025, Methanex has about 6.4 million tonnes of North American capacity and describes its assets as competitive across a wide range of methanol prices. Celanese's Acetyl Chain uses carbon monoxide, methanol and ethylene, with methanol from its Gulf Coast Fairway joint venture. The cost axis is gas.
Read next
Ethane vs Naphtha: Feedstock Advantage
Ethane yields 80-84% ethylene vs naphtha 29-34%; US ~78% ethane feedslate; why USGC sits low on the global curve and naphtha units idle first.
Reading the Petrochemical Cycle
Spread mean-reversion, utilisation as early warning, trough language across the peer set, and why normalised prices differ from spot prints.
Steam Cracker Yields by Feedstock
Five cracker feeds ranked by ethylene yield, from ethane to gas oil: tonnes of feed per tonne of ethylene, and the co-products that grow as the feed gets heavier.
Mid-Cycle EBITDA for Commodity Chemicals
Why LTM fails at cycle extremes; company frameworks from Dow, Olin, MEOH, LYB; ~6-9x EV/EBITDA on normalised earnings; leverage on mid-cycle EBITDA.
See it applied
These company profiles apply the concepts from this guide to real public companies.