In a surprising reversal, a 5-cent North American polyethylene price increase that seemed to have faded away in December actually took hold in the market.
Many buyers contacted midmonth by Plastics News indicated they did not expect the increase to stick. But between then and the end of the month, numerous factors — including lower producer inventories and higher raw material prices — combined to push the 5 cents through.
One Texas-based PE buyer said the increase took hold “after much consternation, haggling and arm twisting.”
“I still don't think [PE makers] should have won [the increase], but we have to live with it,” he said.
At PE maker Westlake Chemical Corp. in Houston, Senior Vice President Jeff Taylor said there were “several factors in place” that helped the increase go through, but PE makers still had a big challenge in winning an increase during December, which historically is a slow business month for PE.
“Demand in December was stronger than expected,” Taylor said by phone Jan. 12. “But the problem we still have [in pricing] is the lag time. We took a big hit in October/November when prices went down while our raw materials costs went up.”
One PE buyer said the December increase was the first seen in that month since 1994. The late-December push provided all of the market's price gains for 2011. Prices had been up as much as 11 cents per pound midyear before giving back all of that amount by November.
Demand was far from robust in the first 10 months of 2011, with high density PE sales up only 2 percent and sales of low and linear low density PE each declining about 1 percent, according to the American Chemistry Council in Washington.
The December hike also succeeded in part because of unplanned PE production outages seen by ExxonMobil Chemical Co. in Mont Belvieu, Texas, and Nova Chemicals Corp. in Moore, Ontario.
PE makers were reacting to market realities in pushing for the December increase, according to Phil Karig, managing director of the Mathelin Bay Associates LLC consulting form in St. Louis.
“The drop in [PE] resin prices had been sharper than what the producers felt comfortable with,” Karig said Jan. 12. “And with the increase in raw material prices, all of the things that might have caused [the increase] not to go through were thrown by the wayside. Producers were feeling real pressure on profitability.”
Global raw material costs also play a role, Karig added. So the fact that U.S. oil prices have climbed more than 4 percent in the last month — and remain above $100 per barrel — has a bearing on the PE market, even though most North American PE is based on natural gas, which remains low-priced at less than $3 per million British thermal units. Oil is more commonly used as a PE feedstock in other parts of the world, with the exception of the Middle East.
North American PE makers now are working on increases of 6 cents per pound for January, with several producers announcing increases of 7 cents per pound for February as well. Market watchers said there's a good chance that at least some of the January increase will be successful.
None of this makes life any easier for the region's PE buyers.
“I couldn't get any supplier to break ranks and push the [December] increase even for volume commitments,” an Illinois-based PE buyer said.
Another Texas-based PE buyer said he was frustrated by the PE market's approach to pricing, which can lead to late settlements and overdependence on third-party price indexes.
“This industry isn't short on intellect, but it's short on leadership,” he said.