10 November 2010 20:23 [Source: ICIS news]
By Nigel Davis
Principally, demand is strong and ethylene feedstock in North America and
Ethylene prices have weakened markedly in
Macroeconomic nervousness persists, and against that backdrop plastics consumers are hedging their bets. The case is the same across many commodities.
Consumers expect oil to track higher and foresee a price push downstream. And while it may stretch the imagination to compare polyethylene price movements to those of a true commodity, there are similarities.
Consumers appear willing to accept price increases because they need to match demand. Some also want to be in a position to pass higher prices on down the chain into markets that are still recovering from the impact of recession.
Overlaid on regional influences is the pull from the
Take one polymer, linear low-density polyethylene (LLDPE). Strong demand from the agricultural film sector in
Standalone low-density PE (LDPE) margins last week in northeast
PE prices were up but feedstock ethylene prices were well down - at their lowest since October last year - on lower (ethylene) prices and higher naphtha costs.
Polyethylene buyers in
While significant new capacity additions have been made in the Middle East, and in
The availability of low-density PE, for instance, has been restricted globally and capacity closures in
Producer margins have been squeezed by higher crude and naphtha costs which they are keen to pass on down the chain. At the same time ethylene availability has tightened following port and other strikes in
In each region the strong draw of emerging markets is apparent - and apparently sufficient to balance out the rising tide of product available from new production capacities.
But questions remain as to what is demand growth driven by speculation - or by anticipation that prices will climb higher - and what is truly sustainable.
My colleague John Richardson wrote in his blog this week about the herd mentality in commodities.
He added: “For chemicals markets, the dangers are that real demand pictures get distorted as buyers hedge against the anticipation of higher oil prices by building stocks (sounds familiar?).
“And as the great scramble to guard against feedstock inflation gathers momentum, those who trade in chemicals might well be tempted to come out with outlandish and silly stories to justify why ‘real demand’ is strong - ie to promote a bit more panic among the buyers.”
Buyers may or may not be panicking, but they appear to be being forced to go with the flow.
Does that mean they are accepting the pain, or are they passing these higher costs on in their own prices?Bookmark Paul Hodges’ Chemicals & the Economy blog
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