Pushed by tight ethylene feedstock supplies, Dow Chemical Co. has announced a major price increase for its polyethylene resins.
Midland, Mich.-based Dow plans to raise the price for octene-based PE by 9 cents per pound on Sept. 15. All other PE resins made by the firm are expected to go up 7 cents per pound on that date as well.
Westlake Chemical Corp. of Houston also has announced a 7 cent move for Sept. 15. Industry sources said Chevron Phillips Chemical Co. LP, Equistar Chemicals and Eastman Chemical Co. have taken similar action. Nova Chemicals Corp. has matched Dow with a 9 cent move for octene-based PE and 7 cents for nonoctene grades.
Ethylene supplies and production costs, as well as strong product demand, were the main reasons for the increase attempt, Dow spokesman Paul Oakley said.
Pittsburgh-based Nova suffered a weather-related ethylene outage earlier this year in Joffre, Alberta, and still has not returned to full production. Nova spokeswoman Stephanie Franken said the firm's ethylene production in Joffre is ``near normal levels,'' but added that Nova will continue force majeure conditions for ethylene ``for the foreseeable future'' because of concerns about ethane supplies in the region.
An explosion and fire last week at an Innovene LLC plant in Alvin, Texas, has taken that unit off-line. Dow, Chevron Phillips, Equistar and DuPont Co. also have experienced smaller incidents in recent months at facilities in Texas.
In total, almost 7 percent of North American capacity has been affected at one time thus far in 2005, according to Howard Rappaport, an industry analyst with Chemical Marketing Associates Inc. consulting firm in Houston.
``There have been a number of unexpected outages in the ethylene chain,'' Rappaport said. ``Along with improved polyethylene demand in recent months, that's snugged up the ethylene market a bit.''
CMAI now expects North American ethylene operating rates for August to check in at close to 95 percent. Oakley said Dow's North American PE sales are up about 10 percent in 2005, although the American Plastics Council of Arlington, Va., reported recently that industrywide PE sales in the United States and Canada were down about 1 percent in the first half of the year.
Raw material prices also are playing a role, with natural gas cash prices at almost $9.70 on Aug. 17. Those prices had been around $7 in late June. Natural gas is used to produce about 70 percent of U.S. and Canadian PE. Prices for crude oil - used as a feedstock for the rest of North American PE output - passed $66 per barrel Aug. 16, after being around $47 a year ago.
``A key issue is where [resin makers] are going to get feedstock,'' said Robert Bauman, an industry analyst with Nexant Inc. in Houston. ``If they can't get ethylene [from natural gas], they just can't switch to crude oil.''
But Bauman added that supply and demand of PE and ethylene within the North American market are bigger factors than oil or gas costs.
``This is not a cost-driven industry,'' he explained. ``Raw materials are not a price driver. What we're seeing now is tight supply [of ethylene] giving the market momentum to cover [raw material] costs.''
At this point, 2006 is shaping up to be a peak year for the PE market, according to Bauman.
``We're moving into a fly up,'' he said. ``Asia is strengthening up and exports from North America are firming. Producers should be at reinvestment levels in 2006 and that should continue in 2007 and 2008, although almost all of that reinvestment will be outside the U.S.''
With many North American processors drawing down inventories both of resin and finished parts that they had built in late 2004, PE producers were able to put a 6 cent increase in place in July. They're now working on another 6 cent move with an Aug. 1 date.
The increases come after average PE selling prices dropped an average of 10 cents per pound in the first half of 2005, as processors worked off inventory and Asian demand, led by China, failed to materialize as expected.
On July 28, Equistar owner Lyondell Chemical Co. of Houston reported that its first-half PE sales volume, in pounds, dropped almost 4 percent to less than 2.7 billion. In spite of the PE drop, sales in dollars for Lyondell's ethylene, co-products and derivatives unit - including PE - were up 43 percent vs. the first half of 2004 to $5.8 billion. The unit's pretax profit more than doubled to $780 million.