The North American low and linear low density polyethylene markets absorbed another 6 cents in per-pound price increases in October, with high density PE climbing another 5 cents. The moves have left some market watchers wondering when the segment's breaking point will be reached.
``The resin companies are telling us they're running as hard as they can and they still can't supply enough resin,'' a California-based PE buyer said. ``We've even had one [PE] supplier ask us to reduce our orders for the fourth quarter.''
Average per-pound selling prices now have climbed an amazing 20 cents per pound for HDPE and 21 cents per pound for LDPE and LLDPE in 2004. That represents an increase of more than 45 percent on per-pound selling prices for butene-based LLDPE for extrusion and liner film, according to the Plastics News resin pricing chart.
Some processors said they are having difficulty passing the costs on to their customers.
``If this goes on into January, there are going to be some processors closing because they'll be in negative margins,'' an Ohio-based PE buyer said.
Resin makers have justified the wave of increases because of high prices for natural gas. Natural gas was selling Nov. 8 at around $6.40 per million Btu, an increase of more than 40 percent from its year-ago price.
But at the same time, government-tracked supplies of natural gas in storage are up more than 4 percent from a year ago, and are almost 9 percent higher than their five-year average. These seemingly contrary positions - more natural gas available, but higher PE prices - have left some buyers scratching their heads.
Market watchers say crude oil prices also are affecting the scenario because of the connection some investors make with that product and natural gas. West Texas crude was selling Nov. 8 for $49.60 per barrel, a jump of 60 percent from that same date in 2003. As a result, natural gas prices have had a ``sympathetic'' rise in correlation with crude oil prices, in spite of supply/demand realities, according to some industry contacts.
One PE executive tried to explain the situation by pointing out that the capacity needed to extract ethane from natural gas has been constrained because of high demand, limiting the amount of ethane available to make ethylene and PE.
The executive also pointed out that 2004 PE demand has been higher than expected, and when combined with the shuttering of some older North American PE capacity in recent years, the demand has tightened supply/demand balance.
Through August, U.S./Canadian HDPE demand was up more than 12 percent, with LDPE and LLDPE sales each up almost 8 percent, according to the American Plastics Council in Arlington, Va.
Exports have played a sizable role in PE sales growth this year, adding more than 3 percent to the LDPE total, more than 2 percent to the HDPE total and almost 1 percent to the LLDPE total.
PE end-market growth leaders through August included:
* HDPE nonpackaging film up 12.6 percent.
* LDPE nonfood-packaging film up 8.9 percent.
* LLDPE food-packaging film up 9.7 percent.
Most major PE makers now are working on increases of 6 cents per pound set to take place Dec. 1.