Polyethylene prices are continuing their early-year surge, with price increases of up to 5 cents per pound going through to most buyers since March 1.
All grades of high density PE are up an average of 3 cents, while all grades of low density and linear low density PE have climbed an average of 5 cents. These changes are reflected in this week's Plastics News resin pricing chart.
HDPE prices have risen an average of 6 cents so far in 1999, while LDPE and LLDPE prices are up an average of 8 cents. Major PE makers — including Dow Chemical Co. of Midland, Mich.; Mobil Chemical Co. of Fairfax, Va.; Exxon Chemical Co. of Houston; Fina Oil and Chemical Co. of Dallas; Union Carbide Corp. of Danbury, Conn.; Phillips Petroleum Co., of Bartlesville, Okla.; and Solvay Polymers Inc. of Houston — are attempting to keep this momentum going by announcing 5 cent increases set for May 1.
The announcement of the May 1 increase seemed to help the March 1 increase take hold, according to some buyers. Similar tactics failed in 1998 as prices dropped an average of 12 cents.
``That was the slam dunk,'' a California-based PE buyer said of the announced May 1 increase.
Other factors driving the increase included strong PE demand, tight ethylene supplies and low processor inventories.
``Polyethylene today is extremely tight,'' one PE executive said.
``Market sentiment has shifted," he said. A lot of the decline we saw last year was based on psychology and not on supply and demand.''
January U.S. LLDPE sales soared 10.5 percent over last year's total for the same month, while producers reduced their output by almost 2 percent, according to the Society of the Plastics Industry Inc. in Washington.
HDPE sales jumped 5.5 percent in the same comparison, with production up more than 2 percent. LDPE sales are down 3 percent, with production off almost 7 percent.
Ethylene supplies are estimated to be in the six-to-seven-day range in a market where anything under 10 days is considered tight. This tightness has been caused by planned as well as unplanned shutdowns at ethylene suppliers, such as Equistar Chemicals LP, BP Amoco Chemicals, DuPont Co. and Shell Chemical Co.
Several buyers said the outages may have been initiated by PE makers to spark price increases.
``I don't know if there's a true shortage of ethylene or polyethylene,'' an Ohio-based PE buyer said. ``We haven't had any cases where we couldn't get the resin we need.''
``This is an artificial shortage,'' a New York-based PE buyer said. ``Companies have cut back on production because they know when new capacity comes on later this year they're going to be in trouble.''
Capacity additions that started in late 1998 will have added 1.25 billion pounds of swing HDPE/LLDPE capacity, 1 billion pounds of HDPE capacity and 500 million pounds of LLDPE capacity by the end of this year. Included in this wave are expansions by Dow, Equistar, Exxon, Fina, Mobil and Westlake Polymers of Houston.
In addition, many PE processors had kept their inventories lower than normal in 1998 to capitalize on monthly price reductions.
``If you think your next rail car [of polyethylene] is going to be cheaper, you're not going to add to your inventory,'' another PE executive said.
With demand ramping up in 1999, some processors have had to scramble to obtain material. That could be good news for PE makers.
``At the end of  we were in a down cycle, but now you might want to get an extra rail car to beat the next increase,'' a Chicago-based PE buyer said. ``If everyone does that, it'll increase demand.''
But a number of PE buyers believe the early-year PE price run-ups will be short-lived.
``[Prices] will reach the point where buyers reach their normal inventory levels and then will drop off,'' the Chicago buyer added. ``There's enough capacity coming on this summer that prices will start to deteriorate.''