Against the odds, North American PE makers have put through increases averaging 4 cents per pound to customers since Sept. 1.
Many buyers were expecting PE prices to be flat in September, just as they were in August, until a late-month push by suppliers allowed the 4 cents to take hold. The increase occurred even in the absence of strong domestic sales and with an export market that's expected to be on the wane.
But September exports maintained a high enough level to create tightness in the North American supply chain and give PE makers some leverage. One source estimated that more than 30 percent of PE made in North America in August and September was sold outside of the region.
The unexpected price hike — and the change in the makeup of the market — isn't sitting well with some PE buyers.
“There used to be a real partnership between resin makers and processors at the regional level, but that's not there anymore,” an East Coast PE buyer said. “Now [PE makers] look at it as a global business, and they'll short a U.S. customer if they can get a better price somewhere else.
“We're like gas station attendants. We have as much control over the market as that guy does.”
Several buyers said they now expect some or all of the 4-cent September move to be given back in October, even though a 5-cent increase attempt remains on the table.
Mike Burns — a PE market analyst with Resin Technology Inc. in Fort Worth, Texas — agreed that the September PE price hike seemed to come out of nowhere.
“The drivers that would have helped it get through are already gone,” he said. “There's little domestic demand and almost no buying in Asia. But [PE makers] stuck to their guns and said 'Go buy from someone else, then.' “
North American PE prices now have climbed an average of 17 cents per pound in 2009. That works out to an increase of almost 30 percent, based on average selling prices for dairy blow molding grades of high density PE. The increases came after prices plummeted in the fourth quarter of 2008, as prices for oil and natural gas tanked and demand evaporated as the impact of global recession kicked in.
Cash prices for natural gas were around $3.50 per million British thermal units Oct. 1 — less than half of the $8 level they occupied a year ago. Natural gas is used as a feedstock to make more than half of North American PE. Low natural gas prices also have enabled North American PE to remain competitive on the global market.
But domestic sales have continued to suffer. U.S./Canadian domestic HDPE demand through July was down 13 percent vs. the year-ago period, according to the American Chemistry Council in Arlington, Va. Sales of low density PE were down 12 percent and sales of linear LDPE were down 9 percent in the same comparison.
North American PE operating rates have been above 90 percent in recent months, but through July had averaged only 85 percent during 2009, sources said.
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