Prices fell an average of 3 cents per pound in November, following crude oil prices, which have declined almost 30 percent since June. The previous PE price drop was a 2-cent decline in November 2012. Since that point, six price increases totaling 23 cents per pound have hit the market.
Polypropylene resin prices in the region followed suit, sliding by an average of 5 cents per pound in November.
U.S. oil prices were near $106 per barrel in June, but since that point have fallen steadily and were just under $76 in late trading Nov. 24. Low oil demand growth in Europe and Asia — combined with increasing supplies in the U.S. and the Middle East — have combined to drive prices down to their lowest levels since late 2010.
Even though natural gas is used as a feedstock in most North American PE production, the price of oil is still used to set the resin price, since that material is used as a feedstock in the majority of PE production globally.
Market sources said that PE maker Nova Chemicals Corp. was the first to confirm the price decrease. Nova then was followed by ExxonMobil Chemical Co. and LyondellBasell Industries, sources said.
In a Nov. 24 note to clients, PE analyst Mike Burns said that North American PE makers “are reluctantly addressing the global price points in an effort to maintain year-end profits.”
Burns, who is with Resin Technology Inc. in Fort Worth, Texas, added that PE prices in Southeast Asia are facing “significant downward pressure,” and that the total amount of North American price decreases won't be determined until a price floor is realized and buying activity resumes in that region.
A PE buyer in the Southwest U.S. said that the November PE price drop “is tied to the oil drop, but the oil drop causes the Asians to stop buying. … So the reality is that the price in North America is falling because of a global price disparity.”
The buyer added that it's “sort of ironic” that North America has the highest global PE price, even though it's the second-lowest cost region, trailing only the Middle East. “Either the price [in North America] has to drop more or the China price has to come up,” he said. “This price imbalance will kill processors in the U.S.”
U.S./Canadian PE demand hasn't been very strong in the first nine months of 2014, even though a pair of price increases totaling 7 cents per pound have taken hold. Through September, regional sales of high density PE were down 0.5 percent, with sales of low density and linear low density PE each up only about 1 percent, according to the American Chemistry Council in Washington.
Regional PE prices had been flat in October after increasing 3 cents per pound in September. The other previous 2014 PE hike took place in February, when prices rose by 4 cents per pound.
U.S. natural gas prices have been between $3.50 and $5 per million British thermal units for much of 2014 and were near $4.25 in late trading Nov. 24. Increased supplies of low-priced natural gas throughout North America have increased profit margins for PE makers in recent years and have led to the announcement of numerous PE capacity expansions in the region.
Regional polypropylene resin prices also fell in November, taking a 5-cent per-pound decline after having climbed 4 cents in October. The November drop was tied in to light demand and lower feedstock costs, sources said. Even with the drop, regional PP prices remain up a net of 2 cents per pound so far in 2014.
North American prices for polymer-grade propylene feedstock are still overpriced relative to global prices for that material and to other propylene benchmarks, according to RTI PP analyst Scott Newell.
“Inventories of monomer are improving,” he said. “The market is in the process of correcting.” Newell and other industry sources said that additional North American PP price reductions are expected for December.
As with PE, North American PP demand has been far from inspirational in 2014, growing by just under 1 percent through September, according to ACC.