By: Frank Esposito
September 5, 2013
AKRON, OHIO — Polypropylene buyers are worked up because something is happening, while polyethylene buyers are worked up because nothing is happening.
Welcome to the North American resin market!
Regional PP prices moved up an average of 5 cents per pound in August, according to buyers contacted by Plastics News. Prices had moved up an average of 3 cents per pound in June. But even that combined 8 cents is not enough to push PP pricing into positive territory for the year. Through August, regional PP prices are down a net of 3 cents.
"We're looking at continued price volatility for polypropylene until new propylene monomer capacity comes onstream in 2015," said Robert Bauman, president of the Polymer Consulting International consulting firm in Spring, Texas.
Through April, North American PP sales were down more than 5 percent, according to the American Chemistry Council in Washington. A domestic sales drop of almost 4 percent was worsened by a plunge of more than 37 percent in export sales.
"Export sales are low, and there's maybe 10-15 percent of polypropylene production capacity that's underused," Bauman said of current market conditions.
In PE, it's fair to say the silence is deafening. North American prices have been flat since May. That's the first time regional prices have gone three months without moving since late 2009, and only the second time it's happened since mid-2000, according to the Plastics News resin pricing chart.
"Operating rates [for PE] are high, but when prices are flat, people aren't out there pre-buying," a resin buyer in the Southeast U.S. said. "Demand for ethylene is balanced, so that's stopped [PE] prices from going up, and export markets are still available to balance out supply, so that's stopped prices from going down."
A Texas-based PE buyer added that PE makers' profit margins "are phenomenal right now, so buyers have been resisting any attempt to raise prices."
Buyers successfully fended off price hikes of 2-4 cents per pound in August. PE makers now are pushing for a 5-cent hike effective Sept. 1, with some nominating a 6-cent hike for Oct. 1 as well. PE makers' profit margins have been boosted by low prices for natural gas, which is used to make ethane feedstock. Shale gas discoveries and development have made North America the world's second-lowest cost region for PE production, trailing only the Middle East.
Buyers and market watchers said that although some of the September attempt might stick, they also expect prices to recede a bit later in the year. Maintenance turnarounds and ethylene outages seen earlier in the year — which also helped to keep regional PE supplies tight — mostly have been dealt with.
PE makers "basically are happy with what they have in margin and they're happy they're not getting a decrease in [resin] price," said Phil Karig, managing director of the Mathelin Bay Associates LLC consulting firm in St. Louis. He added that potential U.S. military involvement could affect PE pricing if it causes the global price of oil to spike. North American PE prices remain influenced by oil, even though natural gas is more often used as a feedstock in the region.
Even with three months of flat pricing, earlier increases have left regional LDPE and LLDPE prices up an average of 9 cents per pound so far in 2013, with regional HDPE prices up an average of 11 cents.
PE makers "were able to get prices high because there's a global floor for pricing, and because they can move product overseas," said Mike Burns, a PE market analyst with the Resin Technology Inc. consulting firm in Fort Worth, Texas. Producers' inventory levels "have been low across the board" in 2013, which also has affected the North American market, he added.
Through April, U.S./Canadian HDPE and LDPE sales each were up more than 6 percent, according to ACC, while U.S./Canadian LLDPE sales were up more than 3 percent. Sales of HDPE and LDPE were boosted by gains of more than 20 percent in export sales.