By: Frank Esposito
February 27, 2014
The never-ending winter of 2014 played a role in North American polyethylene resin prices climbing in February — but the weather was not enough to stop regional polypropylene prices from sliding in that month as well.
The 4-cent PE hike ended a four-month period of flat pricing for the material, according to the Plastics News resin pricing chart. Since 2000, regional PE prices have only seen four periods where prices were flat for at least three months. Two of those periods have occurred in the last 18 months. Market watchers have chalked this up to increased producer discipline combined with relatively low demand growth.
It's also worth noting that producer discipline in controlling inventories apparently has played a role in preventing regional prices from dropping. The North American market has not seen a price decrease since late 2012.
The February hike — which is shown on all grades of high, low and linear low density PE on this week's Plastics News chart — was supported by PE supply issues, most of which were caused by extreme cold and heavy snowfall that has hit many part of the U.S. in recent months. ExxonMobil Chemical Co. has gone to sales allocation on PE after experiencing production problems at its plants in Mont Belvieu, Texas, and Baton Rouge, La.
PE maker Ineos Group also has seen weather-related operating issues at its plant in Deer Park, Texas, leading that firm to declare force majeure on PE. LyondellBasell Industries has declared force majeure as a result of weather-related shipping issues.
Operating rates for PE in the region also have been extremely high in early 2014, getting into the high 90s on some materials. Operating rates were in the mid-90s during 2013.
"If there was a key word for [February], it would be 'weather,'" market analyst Phil Karig wrote in an e-mail. "The downside of having raw materials delivered via barge to your plant in the Midwest using an inland waterway is that sometimes there's a whole lot more ice than you planned on — as LyondellBasell has unfortunately discovered as they wait for Spring and deliveries."
"Natural gas prices, while still low by global standards, have seen a healthy percentage increase as the result of record cold temperatures in most of the eastern U. S." added Karig, who is managing director of Mathelin Bay Associates, a St. Louis-based consulting firm. "And while ethylene prices are starting to calm down they have unavoidably been affected by cold weather over the past few months."
Market analyst Mike Burns described the February increase as "was one of the rare increases that was implemented in the month it was announced for."
Burns — who is with Resin Technology Inc. in Fort Worth, Texas — added in an e-mail that tight supply in butene-based high-molecular weight HDPE and LLDPE markets impacted regional film markets in February.
"Without any incremental pounds in the LLDPE and HMW markets, processors had very little leverage to challenge the February price increase," he said.
Regional PE makers now are seeking increases of 6 cents per pound for March 1.
In a Feb. 27 news release, officials with Calgary, Alberta-based materials firm Nova Chemicals Corp. credited higher margins and record sales volume in PE with the firm's operating profit growing to $1.1 billion in 2013 — a 10 percent increase from 2012. Fourth-quarter operating profit in Nova's olefins/polyolefins business — including PE — grew 65 percent vs. the year-ago period to $215 million.
Nova in December began using natural gas-based ethane from the Marcellus Shale region as an ethylene feedstock at its plant in Corunna, Ontario. In January, the firm used ethane from oil sands in Western Canada as a feedstock at its ethylene unit in Joffre, Alberta.
Nova also plans to increase capacity for LDPE and HDPE in Moore Township, Ontario, between 2014 and 2018 via retrofitting and debottlenecking. Officials also are weighing the possibility of a new PE unit using the firm's Sclairtech-brand technology.
LLDPE sales grew 3.7 percent in the U.S. and Canada last year, according to the American Chemistry Council in Washington. That was the highest growth rate of the six commodity resins tracked by ACC. LDPE sales had the second-highest growth rate, checking in with 2013 growth of 2.4 percent. HDPE sales ticked up 1.1 percent for the year.
Both LDPE and LLDPE benefited from strong export sales growth for the year. LDPE exports grew 11.8 percent, while LLDPE exports increased 12 percent. That helped boost flat domestic sales for LDPE, as well as domestic LLDPE sales which had moved up only 1.4 percent. HDPE was amazingly consistent in 2013, with domestic, export and overall sales each up 1.1 percent. In the domestic HDPE market, sales into pipe and conduit surged ahead 7.3 percent in 2013.
In PP, the 1 cent drop came on the heels of a total of 9 cents of hikes that had hit the market in December/January. Market watchers cited speculation and pre-buying in advance of announced increases as reasons for the earlier price hikes. The February drop was attributed to lower propylene monomer costs and lower resin demand.
Regional PP prices grew by a net of 9 cents per pound in 2013, according to the Plastics News chart, but total price volatility — combining increases and decreases — was 49 cents, easily making PP the most volatile commodity resin in North America during the year.
North American PP sales fell almost 1 percent in 2013 to just under 16.4 billion pounds, according to ACC. Domestic sales grew almost 1 percent — but export sales tumbled 35 percent, as high prices made PP from the region uncompetitive in foreign markets.
"While [PP] prices dropping a penny in February is interesting, the ongoing story is that the PP market is continuing to act like a casino," Karig said. "Ongoing shortages of propylene due to the shift away from heavy feedstocks and a dearth of on-purpose propylene production capacity make the market as volatile as a craps game. And volatile markets attract all sorts of gamblers looking to make a quick score.
"Some processors hoping to profit from avoiding a big price increase will buy more inventory than they need while financial buyers, the professional gamblers in the market, roam about looking to make a quick score," he added. "The processor playing the PP market by buying large amounts of extra inventory will survive a penny price drop, but when the bottom falls out of the market as it tends to do from time to time, someone is always left holding the bag."
Houston-based LyondellBasell — which leads both the world and North America in PP capacity — saw yearly profit rise almost 36 percent to almost $3.9 billion, even as annual sales fell almost 3 percent to just under $44.1 billion.
Olefins and polyolefins units — including both PP and PE — in the Americas and in its Europe/Asia/International group ranked as LyondellBasell's two largest businesses in 2013. Each unit saw sales grow about 1 percent during 2013, with the Americas reaching almost $13.1 billion. Operating income for olefins and polyolefins in the Americas grew almost 23 percent to almost $3.3 billion.
LyondellBasell is adding capacity for ethylene feedstock at three sites in Texas. The firm also has announced new polyethylene capacity via debottleneckings, and officials have said larger PE expansions are being considered.