After months of inactivity, North American PE makers have announced attempts to raise prices by 3 cents per pound effective Sept. 1. Their actions are being spurred by tightness in supplies of ethylene feedstock caused by unplanned outages at several plants, including those operated by Dow Chemical Co., LyondellBasell Industries and Chevron Phillips Chemical Co.
North American prices for PE — the world’s largest commodity resin — hadn’t changed since a 4 cent hike took hold in February. The market has been in a historic period of low volatility, with only five price movements — all increases — taking hold since January 2013. By comparison, the North American PE market averaged seven price changes per year in the decade from 2003-2012, according to the Plastics News resin pricing chart.
Midland, Mich.-based Dow had announced a 4-cent hike for Sept. 1, but all other producers announced 3-cent moves, leading market watchers to believe the 3-cent number would be the one attempted.
Chevron Phillips and LyondellBasell’s Equistar business each declared force majeure supply limits on PE after incidents at their plants in Texas. Chevron Phillips — based in The Woodlands, Texas — experienced a fire July 7 that injured two workers at its ethylene/propylene unit in Port Arthur. That plant has almost 1.8 billion pounds of annual ethylene capacity.
Houston-based LyondellBasell already had declared force majeure on ethylene made in La Porte when it announced on July 9 that it had experienced “significant feedstock supply disruptions” at its PE plants in Matagorda and Victoria. Those plants have combined annual capacities of about 5.4 billion pounds of PE.
This already tightening situation was worsened on July 22 when Dow had an unplanned outage at its plant in Fort Saskatchewan, Alberta. The firm could lose more than 200 million pounds of annual ethylene production as a result. Officials on Aug. 4 said that the impacted ethylene unit was back on line, but at low operating rates. Dow’s annual PE capacity there is estimated at about 1.9 billion pounds.
In an email, market analyst Phil Karig said that after a remarkably steady PE market for most of 2014, PE prices in the fall “will turn in large part on the state of ethylene outages and when affected plants start to come back on-line.”
Karig — managing director of the Mathelin Bay Associates LLC consulting firm in St. Louis — added that the approaching Atlantic hurricane season also could affect PE market pricing.
A PE buyer in the Southeastern U.S. was not happy about the September increase attempt.
“There’s some stress from both the [PE] suppliers and customers over this increase, because it’s not demand-driven, but driven by production issues, which will correct over the next couple of months,” he said.
Profit margins for integrated PE makers also are at record levels, the buyer added. The increase also will put Asian PE prices below those of North America, even though North American production costs are much lower because of low-priced natural gas feedstock. That price gap “doesn’t sit well with [processors] in North America that compete with Asia on finished goods like tape, fabric and film,” the buyer said.
Market analyst Mike Burns of the Resin Technology Inc. consulting firm in Fort Worth, Texas, said that although the September PE increase attempt “isn’t justified,” there’s a strong possibility that it will go through because of supply issues. Processors’ PE inventories might already be tight, Burns added, since many of them chose not to buy PE in June because they were expecting a price decrease in July — but that decrease never came.
Film makers see some increases
The September increase attempt also might get a mixed reaction from North American PE film extruders, since earlier this summer they tried to raise prices for their own products by an average of 4 percent, even though resin prices remained flat. Many of the region’s film extruders have contracts with their customers that tie their film prices into resin prices. This was not an issue when PE prices bounced up and down as they did in most years before 2013, but recent price stagnation had left them unable to raise prices to handle higher costs for freight, shipping, health care and other expenses.
Market watchers said the non-resin film price increases met with only limited success, with some shrink film makers able to raise prices around 2 percent. In an Aug. 1 conference call with stock analysts, Berry Plastics CEO and Chairman Jon Rich said that his Evansville, Ind.-based firm — which ranks as one of North America’s largest film extruders — was still working to implement the film increase, and expected to see more results from the increase in the third quarter of the year.
Sigma Plastics Group — another leading North American film extruder, based in Lyndhurst, N.J. — “is still pursuing” the non-resin increase and has seen it go through at some accounts, President and Chief Operating Officer Mark Teo said. Teo added that lack of widespread support from mid-sized and small film extruders has made it difficult for the increase attempt to take hold, but that the industry still needed the price hike in order to recover lost margins.
U.S./Canadian PE demand has been less than stellar in the first half of 2014. Regional sales of linear low density PE increased almost 2 percent in the first half to more than 6.8 billion pounds, according to the American Chemistry Council in Washington, D.C. But six-month sales of high density PE in the region tumbled more than 2 percent to just over 8.7 billion pounds, and LDPE sales slipped almost 1 percent to just over 3.4 billion pounds.
Domestic LLDPE sales growth of more than 4 percent was tempered by a reduction of almost 8 percent in export sales, according to ACC. In HDPE, a slight gain in domestic sales was negated by a 15 percent drop of sales into the export market. For LDPE, a slight domestic sales drop was magnified by a decline of almost 2 percent in export sales.
First-half LLDPE sales growth was led by packaging film, where sales shot up 6.5 percent, according to ACC. HDPE and LDPE also had growth areas in spite of overall declines. Sales of HDPE into blow molded industrial drums and large containers surged almost 7 percent. In LDPE, sales into extrusion coating grew 5 percent.