The year is not off to a great start for North American buyers of polyethylene and polypropylene resin, as per-pound prices shot upward again in February.
Increases on both materials were unexpectedly large. Regional PE prices have soared 8 cents since Feb. 1, with PP up an average of 7 cents, according to buyers contacted by Plastics News. These changes are shown on this week's PN resin pricing chart.
The 8-cent move seen in the PE market included 3 cents from a previous increase attempt that had been split, as well as a separate 5-cent move for February. Buyers had given the 3-cent hike a good chance to stick, but were surprised that the 5-cent increase went through as well.
Market sources said production issues with both PE and ethylene feedstock played a role in the larger PE move. Planned and unplanned maintenance turnarounds have plagued Gulf Coast petrochemical production, due in part to unseasonably cold temperatures in the region. Market watchers said LyondellBasell Industries AF SCA has declared force majeure for high density PE, but the company declined to confirm that report.
Regional PE prices remain well shy of their mid-2008 peak when crude oil surpassed $140 per barrel but just the same have climbed 50 percent since bottoming out in late 2008.
The 8-cent hike, after a 4-cent January jump, isn't sitting well with buyers. You're never happy to see this, but when supplies get tight, it's tough for us to play hardball, said a Southeast PE buyer.
But forward prices for ethylene are down more than expected for the second quarter and beyond, providing some hope that recent price hikes on both PE and ethylene may be short-lived, according to Kathy Hall, executive editor of the PetroChem Wire pricing newsletter in West Orange, N.J.
That's unusual in a historical sense, Hall said of the forward-market drop. Right now, it's more that supplies are limited because ethylene is so sensitive to location. There are several places in Texas and Louisiana where ethylene is particularly tight and that's allowed producers to raise prices.
Exports also have played a role, thanks to the low-priced natural gas feedstock that's used to make most North American PE making its price attractive to global buyers. That dynamic allows North American PE makers to tighten up the domestic market by selling more abroad.
The ability to export is phenomenal right now, the Midwest buyer said. We had a [PE] producer tell us they've got better options to go overseas, but that seems a bit short-sighted, if you ask me.
In PP, the situation is extreme. As with PE, prices are below the highs of mid-2008, but PP prices have soared higher, and with the 7-cent jump now are up 80 percent from their late 2008 lows.
The February move even allowed PP makers to build some margin beyond increases in price for propylene monomer feedstock the first time such a move has happened for several months, sources said.
LyondellBasell also has declared force majeure for PP made at its facility in Lake Charles, La., according to buyers, although officials at the company the world's largest PP maker again declined to comment. Ineos Group has not declared force majeure on PP, but has placed some customers on sales allocation for homopolymer grades because of an unforeseeable loss of feedstock and complications at one of our production facilities, according to a letter from the company.
The [PP] resin makers aren't running any excess amounts, a PP buyer in the Midwest said. They're not making any more than they need, and that's tightening up the whole chain.
But the sudden price hikes with the 7 cents in February following 3 cents from January are affecting the broader PP market, according to Scott Newell, a market analyst with Resin Technology Inc., a consulting firm in Fort Worth, Texas.
PP makers are recouping their costs, at least, but these [price increases] are hurting the processor, who doesn't get to increase his prices every month, Newell said. A lot of these [processors] have prices locked in with their own customers for a quarter or six months or for the whole year.
When prices get this high, it opens up the door for competitors or allows their customers to say they'll fill their shelves with something else.
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