An uncertain demand picture and increasing feedstock supplies have combined to drive down North American prices for polyethylene, polypropylene and PVC resin since May 1.
PE prices are down an average of 7 cents per pound, while PP prices have tumbled 10 cents and PVC prices have taken a 2-cent dip, according to buyers and market watchers contacted recently by Plastics News.
Increased supplies of ethylene and propylene in North America — a result of the return of some petrochemical plants that had been down for maintenance — played a role in the price drops.
“It's like you just added 15 percent more ethylene into a soft market,” one PE buyer in the South said.
“We're looking at a surplus of ethylene by mid-June,” said David Barry, a plastics market analyst with PetroChem Wire, a consulting firm in West Orange, N.J. “The whole ethylene fleet is going to be back online.”
PE prices had climbed an average of 6 cents per pound in the first four months of the year. Returning supplies, however, sent ethylene prices tumbling, especially on the spot market, wiping out all of that previous gain. At the macro-economic level, lower crude oil prices also affected PE, even though most PE in North America is derived from natural gas.
PE demand in the region also tapered off, as buyers had bought ahead and were working off inventories. Soft demand failed to prop up existing price levels.
Most buyers reported the 7-cent PE decline, although some said they were seeing only a 6-cent drop. The 7-cent decrease is being shown on this week's PN pricing chart.
“Feedstocks are part of it, but the weak economy is the bigger piece,” the Southern buyer said. “There's a lot of [PE] material available and demand is very weak.”
First-quarter totals from the American Chemistry Council in Washington illustrate that demand picture, with sales of linear low density PE down 2 percent, high density PE down 3 percent and LDPE down almost 4 percent.
In HDPE, a major 24 percent drop in export sales wiped out a 2 percent domestic sales gain. A similar pattern occurred in LLDPE, where a 19 percent export drop erased a domestic gain of almost 4 percent. In LDPE, an export sales drop of 6 percent worsened a 3 percent domestic decline.
“With lower polyethylene costs overseas enabled by lower crude oil prices, North American PE producers have seen their export markets start to dry up, their inventories start to build and their formerly healthy margins start to be squeezed,” said Phil Karig, managing director with Mathelin Bay Associates LLC consulting firm in St. Louis.
“The run-up [in PE prices] that we saw earlier in the year happened because producers had lost margin and wanted to raise prices to get it back,” added Mike Burns, a market analyst with Resin Technology Inc. in Fort Worth, Texas. “Now [PE buyers] don't need more material.”
Another market watcher said regional PE buyers “have been carping about the huge margins producers had been making, based on the low price of [natural gas-based] ethane.”
Market insiders said another PE price drop is possible in June, although such a drop might be smaller than the 7-cent down-tick in May.
“This might not be a good demand year for polyethylene,” said Robert Bauman, owner of Polymer Consulting International Inc. in Spring, Texas. “It's a combination of feedstock supply and the economy still being pretty poor. Unemployment at 8 percent is still bad.”
The 10-cent plunge that PP took in May is yet another sign of that market's extreme volatility. It marks the eighth time in the last two years that the North American PP market has seen a double-digit increase or decrease in a single month.
“There's too much [propylene monomer] supply available,” PetroChem Wire's Barry said. “Refineries are running at good rates now, and polypropylene demand has taken a hit.
“[PP] sales are low,” he added. “You're seeing people sit out of the market right now because prices are so high.”
PP sales in the U.S. and Canada were up 2.5 percent in the first quarter, according to ACC. Domestic sales were up more than 5 percent, but overall growth was weakened by a dizzying plunge of 34 percent in export sales.
“With a little bit of price relief on monomer, polypropylene producers have additional leeway to roll back some of the sharp PP increases from earlier in the year, and maybe claw back a little bit of the resin sales market share they lost, if only temporarily,” said Karig at Mathelin Bay.
The apparent increase in domestic PP demand also could have been a result of processors buying ahead of additional increases, rather than an actual increase in organic demand, PCI's Bauman added.
“Sometimes people get sales mixed up with demand,” he said.
North American PP prices had soared an average of 22 cents per pound since January. Even with the 10-cent drop in May, prices in the region remain, on average, almost 14 percent higher than they were at the start of the year.
Market watchers said an additional PP price decrease is possible in June, erasing even more of the earlier increases.
The 2-cent drop in PVC prices came as a bit of a surprise, since that material's fortunes appeared to be trending up in recent months. Prices had increased a total of 4 cents per pound in February and March as the housing market improved. PVC generates more than 60 percent of its sales from the building and construction market.
But the drop in ethylene prices and increased ethylene availability proved to be too much, taking away half of the February-March gain. Even with the 2-cent drop, prices remain more than 5 percent higher than they were at the start of the year.
U.S./Canadian PVC sales were up 5 percent in the first quarter, with an 8 percent drop in exports softening a 13 percent gain in domestic sales. In April, U.S. housing starts were almost 18 percent ahead of their full-year 2011 pace.