Lower inventories and concern about unrest in the Middle East both played a role in North American polyethylene prices moving up by an average of 3 cents per pound since Feb. 1.
The increase marks the first time prices have climbed since November. PE makers were trying for an increase of 5 cents per pound, but buyers were able to bargain that down to a 3-cent move.
Regional PE inventories were low at the end of 2010 and have remained low in the first months of 2011, according to buyers and sellers contacted recently by Plastics News.
A small fire in February at an ExxonMobil Chemical Co. ethylene feedstock facility in Mont Belvieu, Texas, affected the market's outlook increasing concern about ethylene supply even though it had no tangible effect on materials.
Concern over the Middle East also played a role, as chaos in Libya sent oil prices surging to $100 per barrel, even thought that North African nation provides only a small amount of North America's oil supply. The greater concern was on how those higher oil prices would affect ethylene prices globally, since oil is used as a PE precursor throughout Europe and Asia. That's not the case in North America, where low-priced natural gas plays that role.
Political risk is a key in the marketplace right now, said Phil Karig, managing director of the Mathelin Bay Associates LLC consulting firm in St. Louis. The problem for [PE] consumers is that they'll look and say if North America is based on light feedstocks [from natural gas], why is the price of oil making polyethylene more expensive?
What's happened is that these feedstocks are fungible commodities, he added. The world is interconnected.
At the Resin Technology Inc. consulting firm in Fort Worth, Texas, PE analyst Mike Burns said there's speculation that the situation in Libya and throughout the Middle East could get worse before it gets better.
That affects oil and ethylene, which will drive Asian prices up, he added. Ethane [from natural gas] can go up as long as it's selling below the oil equivalent.
There's no real reason [for the PE price increase]. But there are a lot of crazy things going on in the world right now.
Both Karig and Burns said current conditions in PE feedstocks could create opportunities for more PE to be exported from North America to other global markets.
North American natural gas prices actually have declined in the last month. Prices for the material stood Feb. 4 at $4.50 per million British thermal units, but had fallen to $3.80 on March 2. Conversely, regional oil prices were under $91 per barrel Feb. 7 but had jumped to almost $102 in late trading March 3.
The PE market is really messy right now, one Texas-based PE buyer said. It's almost like PE makers willed [the February increase] to happen after the earlier rejections by the market.
North American PE makers now are seeking increases of 8 cents per pound for March. That's a combination of an earlier 6-cent increase that had been pushed back from January, and the remaining 2 cents of the 5 they originally sought for February.
Buyers described regional PE demand for January and February as not being exceptionally strong. The region's PE makers are looking to bounce back from an unusual 2010 sales year when strong domestic performance was dampened by a poor showing in export markets.
U.S./Canadian sales of high and low density PE roughly were flat for the year with HDPE down less than 1 percent and LDPE up less than 1 percent, according to the American Chemistry Council in Washington. Domestic HDPE sales growth of almost 7 percent was torpedoed by a drop of almost 28 percent in export sales. A similar scenario played out in LDPE, where domestic growth of 5 percent was sabotaged by an export sales drop near 15 percent.
Sales of LLDPE in the U.S. and Canada fared a bit better, as exports of that material fell only 2 percent. That reduced a 7 percent domestic sales gain to an overall growth rate of almost 5 percent.