Total Petrochemical decision should have little impact on PS market

Polyethylene pricing has been the topic of much debate in the domestic market for the last two months.

It started in June, when some buyers saw a 3-cent price drop, a move that may have begun when one high density PE supplier lowered prices to some of its customers.

That 3-cent drop later spread through the rest of the market, reaching most buyers by the end of July.

There's now rumbling that a second 3-cent price drop may have hit the PE market in July as well, bringing the total June-July price drop to 6 cents. This additional decline has not been confirmed by a majority of buyers contacted by Plastics News and has not been shown on the PN resin pricing chart.

Sources said PE is experiencing less-than-robust domestic demand and growing inventory, thanks to capacity expansions and the impact of the U.S.-China trade war on U.S. PE exports.

Market watchers also said that buyer backlash to a 3-cent increase that went through in April after being challenged by some PE users may have played a role in the 3-cent June and July price drop.

After the first 3-cent drop was confirmed, one market watcher told Plastics News that because of low prices for global PE, "additional downward pricing [in North America] is likely, otherwise U.S. converters can import cheaper than they can buy domestic PE."

Chevron Phillips Chemical's rumored bid for Nova Chemicals Corp. could have a major impact on the North American PE market. The rumored bid first was reported by Reuters in mid-June. Neither firm has commented.

A Chevron Phillips-Nova combination would create one of North America's largest PE suppliers. One market watcher said a deal could make sense for both sides.

"With the prospect for capacity growth in their region, Nova is likely to see lower margins, especially as Shell begins to compete for domestic market share," he said. Shell Polymers is adding 3.5 billion pounds of PE capacity at a new plant near Pittsburgh.

"So [Nova] would benefit from regional diversification and realize some economies of scale that reduce cost and increase profitability," the source said.

The source added that for CP Chem, the deal would add lower cost capacity and provide access to a large demand region. Nova also has good feedstock contracts in place, he said, unlike Braskem, which LyondellBasell Industries had been pursuing until concerns about feedstock supply ended those negotiations.

A Chevron Phillips-Nova deal "would be much simpler than the LyondellBassell acquisition of Braskem, making this deal more likely to happen," the source said.

The PE market has not been the only one to see volatility in recent months. There was no summer vacation for North American commodity prices in July.

Average selling prices for solid polystyrene, polypropylene and PET bottle resins each increased during July, mainly as a result of higher feedstock prices.

PVC was the only commodity resin that saw a peaceful month in July, with prices remaining flat.

Solid PS prices saw the largest July hike, moving up by an average of 2 cents per pound. That move was tied to a 14 percent price hike for benzene, which is used to make styrene monomer. Benzene prices for July were up 33 cents to $2.67 per gallon.

Regional PS prices had been flat in May and June after moving up 4 cents in April. Domestic PS demand showed growth of around 1 percent in the first half of 2019, market watchers told Plastics News, with gains in consumer products and electrical/electronic applications.

In PS production, Total Petrochemicals is preparing to close an older production line in Carville, La. But the company has said that the output of that line will be replaced by newer lines at the site. If that transition occurs, there should be little or no impact on North American PS supplies.

A 1-cent price hike for PP in July was impacted by upward movement in price for polymer-grade propylene monomer. Prices for PP had been down 4 cents in June, canceling out a 4-cent price hike from May. Prior to those moves, a series of declines from November through March had sent PP prices tumbling 24.5 cents.

Market watchers now are concerned about the potential impact of a July 31 explosion and fire at a major propylene site operated by ExxonMobil Chemical Co. in Baytown, Texas. Forty-one people were injured in that accident, but none seriously.

ExxonMobil's Baytown site also has PP resin production, which apparently was not affected by the incident. But sources said PP markets could be impacted if propylene production from Baytown, which was more than 1 billion pounds per year, remains out for any length of time.

Tighter propylene supplies could give PP makers leverage to raise prices. Market sources said that PP makers might welcome that opportunity, especially since domestic PP demand hasn't been strong so far in 2019.

PET bottle resin also saw a 1-cent upward move in July. That move mainly was tied into higher feedstock prices. The July increase reversed a surprising trend that had seen prices for that material fall by 2 cents in June and by a total of 6 cents in the April-June period, when demand for bottled water and carbonated soft drinks typically is high.

Market sources said the domestic PET market remains well oversupplied, with bottled water usage attempting to make up for ongoing declines in soft drink demand.

Regional PVC prices were flat in July after making a surprising 2-cent increase in June. That move caught some buyers off guard, since construction activity, which drives demand for the resin, hasn't been overly strong so far in 2019.

Through June, U.S. housing starts were down more than 4 percent vs. the same period in 2018, according to the U.S. Census Bureau. The June PVC increase essentially makes up for a 2-cent decline seen by the market in April. In feedstocks used to make commodity plastics, West Texas Intermediate crude oil prices began July at $59.10 per barrel but had declined slightly to $58.60 by the end of the month, for a slide of less than 1 percent. Natural gas declined less than 2 percent, to $2.23 per million British thermal units, after briefly spiking as high as $2.45.