After a brief year-end lull, polyethylene prices shot up again in February, supported by rising energy and feedstock costs. Prices of low density and linear low density PE climbed an average of 4 cents per pound, while high density PE prices jumped an average of 3 cents per pound, according to resin buyers and producers contacted recently.
"The resin companies had a very good argument [to raise prices] with ethylene prices going up," a Texas-based PE processor said. "Supply is snug but not tight, but ethylene is just out of control."
The turnaround comes right after late-year price reduction and inventory shedding caused prices to drop an average of 3 cents per pound between November and January. PE prices had surged 16-18 cents per pound before the drawback.
"I'm semi-nervous about going back to my customers and saying we need 3 cents up after just taking 3 cents off," another Texas-based PE processor said. "We were just getting caught up from last year."
"The big reason is the cost push on feedstocks," said Rick Salvador, PE business director for Nova Chemicals Corp., an HDPE/LLDPE maker based in Calgary, Alberta. "Ethylene is up 21/2 cents in February and is looking to go up even more. It's all tied back to the prices of crude oil and ethane."
The PE market is coming off a year in which LLDPE sales jumped 11.5 percent while HDPE was up 9 percent and LDPE up 3.9 percent. Producers and consultants agreed that while 2000 is off to a good start, it's unrealistic to expect a repeat of the 1999 boom.
"If the economy keeps going, we should have no problem seeing 4-5 percent growth in polyethylene," Salvador said.
Howard Rappaport, a consultant with Chemical Market Associates Inc. in Houston, said LLDPE growth should be about 5 percent in 2000, with HDPE growing 4 percent and LDPE less than 1 percent.
"You have to discount a couple of percentage points to inventory restocking, since inventories had gone so low," Rappaport said. "The rest was real growth, but in the natural flow of the market you're not going to see that kind of sustained growth back-to-back."
Industry sources argued over the direct impact that rising crude oil and ethane prices have on resin pricing.
Crude prices have roughly tripled in the last year, going from about $10 to more than $30 a barrel. Crude's effect on gasoline prices and the economy in general often is conveyed by resin makers to their customers as a reason for rising prices.
But the argument is a bit misleading, according to Rappaport, because roughly 70 percent of ethylene cracked in the United States comes from ethane, which is part of the natural-gas stream and not a crude derivative.
PE makers are optimistic their momentum will continue with 3 cent increases for March 1, and 5 cent increases for April 1 on the table.
Short term, supplies could be affected by maintenance turnarounds at Phillips Chemical Co.'s Pasadena, Texas, HDPE works and by similar work at Chevron's Orange, Texas, HDPE plant.
Rumors of production outages at Chevron's Orange plant and at a Union Carbide HDPE plant in Seadrift, Texas, were inaccurate, according to company officials.
Chevron's Taylor said the 350 million-pound expansion begun last year at Orange should be completely operational in May, bringing the site's total HDPE capacity to 570 million pounds.