By: Frank Esposito
July 3, 2013
AKRON, OHIO — Supply issues led North American prices for polypropylene and high density polyethylene resin to climb in June.
PP prices moved up an average of 3 cents per pound, as three companies now have reported production challenges. HDPE prices got nudged up an average of 2 cents per pound as a result of supply issues on both the resin and feedstock sides, and stronger demand.
Regional PP supplies have been tightened by unexpected outages at plants operated by Formosa Plastics Corp. USA in Point Comfort, Texas, and by Pinnacle Polymers in Garyville, La.
Formosa ended force majeure conditions on PP last week, but Phillips 66 Co. became the latest PP maker with supply problems when its supply of propylene monomer was impacted by a deadly June 13 explosion at an olefins plant operated by Williams Cos. in Geismar, La. The resulting outage of propylene has led Phillips 66 to limit production of PP at its plant in Linden, N.J.
PP prices in the region had surged 15 cents per pound in the first two months of 2013 but had fallen 17 cents since then. The June hike leaves prices up a net of 1 cent per pound so far this year.
U.S./Canadian PP demand remained weak through April, according to the American Chemistry Council in Washington, falling more than 5 percent vs. the same four months in 2012. A domestic sales drop of almost 4 percent was amplified by a plummet of almost 40 percent in export sales.
Domestic sales of PP into injection molded consumer products — including housewares — fell more than 5 percent through April, while sales to domestic resellers dipped almost 19 percent, according to ACC.
"On the PP side, there have been a host of supply issues, both monomer and polymer-related," resin market analyst David Barry said in an email. "The explosion at Williams' olefins plant has caused the [polymer-grade propylene] market to be tighter than expected.
"There's a big question mark about PP demand as the summer goes along, because it appears that a lot of buyers took the opportunity to pre-buy in May and June," added Barry, who's with the PetroChem Wire LLC consulting firm in Houston. "But in the near term [PP supply] is very tight, and several producers have already indicated they will be looking to expand margins on their monomer-plus contracts by 2 cents per pound in July and August."
For HDPE, the 2-cent hike is the first price move since 9 cents in increases took hold earlier in the year. Prices now are up a total of 11 cents in 2013 for a hike of almost 13 percent.
An outage at Formosa's Point Comfort plant has impacted regional HDPE supply, although the firm last week also lifted force majeure conditions on HDPE there. The situation at the Williams plant in Geismar — which had more than 1 billion pounds of annual ethylene feedstock capacity — could create pressure in the PE field.
Regional HDPE supplies also have been affected by a force majeure situation at Chevron Phillips Chemical Co. LLC's Cedar Bayou plant in Baytown, Texas. The firm experienced a "minor emissions event" on May 9 and 10 when small amounts of hexene, pentane and gaseous ethylene were released.
On May 14, officials said Chevron Phillips — based in The Woodlands, Texas — would "return to full polyethylene deliveries as soon as possible." However, officials declined to comment on the situation July 3.
Regional HDPE makers were enjoying a solid year through April, with sales up more than 6 percent, according to ACC. Export sales growth of almost 22 percent boosted domestic sales growth of almost 4 percent. Domestic HDPE sales into injection molding applications climbed 7 percent in that four-month period.
Total regional PE sales for May — including low and linear low density PE — clocked in at more than 3.4 billion pounds, making it the best sales month for the material since June 2012.
"There was a significant drawdown of [PE] inventories as industry operating rates were 2-4 percentage points below the 12-month average in May," Barry said. "So PE was tightening in May, and there is not much evidence that demand slowed down significantly in June." "That being said, prices seem to have reached a point where it will become difficult to push them up much further," he added, since several buyers "are expecting PE prices to correct downward" in July.