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Polyethylene and polypropylene prices rise despite slow demand

By: Frank Esposito

March 29, 2012

AKRON, OHIO (March 29, 2 p.m. ET) — North American prices for polyethylene and polypropylene resins increased for the second straight month in March, with feedstock issues and supplier discipline overriding slow demand growth for both materials.

Regional prices for all grades of high low and linear low density PE are up an average of 3 cents per pound since March 1, according to buyers contacted by Plastics News. PP prices in the region are up an average of 5 cents per pound in that same span, buyers said.

The PE move is the second half of a 6-cent attempt originally announced for Jan. 1. The first 3 cents of that move took hold in February. The 6 cents in total increases seen so far in 2012 represents a hike of about 9 percent since Jan. 1, based on blow molding grades of HDPE for dairy applications.

Including a surprising 5-cent hike that hit the market in December, prices have jumped almost 15 percent in the last four months.

The March increase found a grip in the market even as regional PE demand was “steady to slow overall,” according to the PetroChem Wire consulting group in Houston. Maintenance turnarounds have limited supplies of ethylene feedstock at some locations, but market watchers said that PE makers’ desire to increase margins played a strong role as well.

One Texas-based PE buyer described March as “a no-flinch month” for PE makers, meaning that none of them offered to reduce or pull the 3-cent increase. The buyer added that the success of the March hike “wasn’t what I expected.”

Market analyst Mike Burns described PE makers’ behavior in March as “very disciplined,” which helped the increase go through in spite of relatively inexpensive feedstocks, a large inventory build and a big drop in export sales in the first two months of the year. Burns is with Resin Technology Inc. in Fort Worth, Texas.

And even though most PE made in North America uses natural gas-based ethane as a feedstock — instead of crude oil-based naphtha — prices in North America continue to follow oil prices. U.S. crude oil prices began the year around $99 per barrel and peaked above $109 in late February. Prices were near $105 in early trading March 29 — an increase of about 6 percent since the start of the year.

By comparison, U.S. natural gas prices began the year around $3 per million British thermal units (BTUs) but were at $2.25 in early trading March 29, for a price drop of 25 percent.

In PP, prices moved up 5 cents after absorbing a crushing 17-cent hike in February. Propylene feedstock makers had been seeking 15 in March, making the 5 cents seem like a victory of sorts for PP buyers. Propylene monomer also only took the 5 cents in March. Changes in monomer pricing have been directly passed through to the PP market in recent years.

PP prices in the region now are up an average of 23 percent since Feb. 1, based on injection molding and general purpose grades of homopolymer PP. March PP demand in the region was weak, according to PetroChem Wire, since buyers had bought ahead in anticipation of last month’s double-digit move.

PP supplies were affected in March by a force majeure situation at a plant operated by Pinnacle Polymers in Garyville, La. Production at the plant was reduced because of limited supplies of propylene feedstock. Propylene supplies in the region remained somewhat tight because of maintenance turnarounds.

Higher U.S. gasoline prices also may be causing propylene to be diverted into that market and away from PP, since the material can be used as a gasoline additive. Average U.S. gasoline prices began the year around $3.25 per gallon, but had rocketed to $3.90 in early trading March 29 — a 20 percent hike.

PE markets in the U.S. and Canada are working to recover from a 2011 year in which HDPE sales grew about 3 percent, but sales of LDPE and LLDPE were essentially flat. North American PP sales — including Mexico — are trying to rebound from a 4 percent sales drop in 2011.