While the U.S. polyethylene market is behaving out of character, the polypropylene market in the region might be stabilizing, according to editors with the Platts research firm.
“This is a very interesting time for U.S. polyethylene,” petrochemicals editor Chris Ferrell said during a recent webinar hosted by Houston-based Platts. “The market is behaving unlike any we've seen in recent years. We're seeing higher sales and lower prices.
“In the past, higher demand meant higher prices,” he added. “Now a demand spike won't do that. That would have been unheard of from 2012 to 2015.”
The steep fall seen in global oil prices since late 2014 has played a role in driving down U.S. PE prices as well. “The U.S. [PE] market now is tied in to global markets,” Ferrell said.
But big changes are heading for the U.S. PE field in the form of large amounts of new capacity for both PE resin and ethylene feedstock, according to petrochemicals editor Pavel Pavlov. New ethylene capacity already has driven down regional prices for that material, he explained.
“Ethylene [prices] have been flirting with six-year lows for the last few months,” Pavlov said. “Six expansions have added 2 billion pounds of capacity in the last year, and that's created a bit of an oversupply.
That oversupply, combined with weak oil demand, has caused ethylene profit margins to drop, he added. At the same time, large amounts of PE capacity are set to come online in the U.S. in the next few years. This will have an impact, Ferrell said, as it will require growth in both U.S. PE demand, as well as exports of U.S. PE to other parts of the world.
“U.S. polyethylene isn't insulated anymore,” he said “Some producers seem willing to gamble that [domestic] production of finished goods won't shift overseas.”
“We've already heard talk of big buyers renegotiating contract price in light of new domestic [PE] capacity coming on.”
Current U.S. PE export levels of 20 percent will have to increase so that new capacity can find a home, Ferrell added. Struggling economies in Brazil and China have hurt U.S. exports this year, he said.
More stability in PP
Conditions might be a little more stable in the U.S. PP market, according to Pavlov, as producers have been able to increase their profit margins even amid a similar higher demand/lower prices scenario. They've been able to do so by lowering prices less than the price drops seen by propylene monomer feedstock.
“We've only seen half of the propylene drop in polypropylene prices,” Pavlov said. “And demand has outweighed production partly because of production outages.”
U.S. PP operating rates currently are around 92 percent and have been as high as 94 percent this year, he explained. Spot supplies of PP also remain limited because of high demand.
As with ethylene in PE, more propylene is headed toward the U.S. market, mainly in the form of propylene made via PDH technology. By the end of the year, Dow Chemical Co. will have brought on a new PDH unit with about 1.6 billion pounds of annual propylene capacity.
Four more PDH propylene units are set to come onstream by the end of 2019. This new capacity “will keep a lid on propylene prices — but U.S. polypropylene prices still will be uncompetitive globally.”
In spite of high PP prices within the region, challenges such as duties, loading and bagging are preventing much PP from entering the U.S. from other parts of the world. Imported PP levels are up this year, but remain under 30 million pounds per month. Importing PP into the U.S. “is not impossible, but it's difficult,” Pavlov said.
The good news for U.S. PP makers is that the higher profit margins they've enjoyed in 2015 “could be high for two or three years,” according to Pavlov. And expansions of both ethylene and propylene “should keep the lid on spot olefin prices,” he said.