US PE producers seek June increase, buyers say unlikely

16 June 2011 20:03  [Source: ICIS news]

A LyondellBasell facility in Bayport TexasHOUSTON (ICIS)--Some US polyethylene (PE) producers were still seeking increases for June contract prices, but buyers and traders on Thursday said that was wishful thinking.

Producers said they were seeking the increases in part because of higher feedstock costs, and in part because of tight supply.

Price ideas for US PE June contracts were widely divergent, with some suppliers still seeking an increase in high-density grades, and others saying prices would be flat for the month and still others suggesting prices could fall, market participants said.

Negotiations were expected to continue through the end of the month, but buyers indicated that there was little support for any increase because of high inventories and weak demand.

In May, contracts were assessed flat from April, with buyers rolling over a proposed  5 cent/lb ($110/tonne, €78/tonne) increase to June. May contract prices for linear low density (LLDPE) butane film were at 78-81 cents/lb DEL (delivered), as assessed by ICIS.

By the second week in June, market sources indicated plans for the full increase had been all but abandoned.

One US producer told customers it was seeking a 3 cent/lb increase on high-density grades of PE, while going flat for other grades, market sources said.

One buyer described that pricing strategy as wishful thinking.

"They are trying to keep it from going down, and hoping it goes flat," the buyer said. "Our understanding is that it should go down."

A drop of between 3-5 cents/lb in June contract prices would not be unreasonable, market participants said, adding that demand remains relatively weak as buyers continue to fight off increases.

Added pressure from lower Asian and Middle Eastern prices also was pressuring the market down, participants said.

Offers from Middle East producers for LLDPE were heard at $1,450-1,470/tonne CFR (cost and freight) Egypt. In Asia, prices for LLDPE film were heard at $1,230-1,280/tonne CFR China.

Pricing in the secondary market is already 6-8 cents/lb lower than May contract prices, which should indicate that prices are ready to fall, sources said.

Any fall in contract prices would likely be less dramatic, sources said, pointing to recent gains in spot ethylene prices.

"The only thing sustaining prices is the spot ethylene market," one source said.

Spot ethylene rose in mid-May before falling off at the end of the month. Prices started to gain ground in June, rising by 2.2% between the first and second weeks in June to between 65.00-67.50 cents/lb on 10 June. 

US ethylene bid/offers for June were at 64.50-66.75 cents/lb on Thursday, but no deals were heard. Spot ethylene traded at 64.50 cents/lb for July and 63.50 cents/lb for August.

Major North American PE producers include Chevron Phillips Chemical, LyondellBasell, Dow Chemical, ExxonMobil, Westlake, INEOS, Total, NOVA Chemicals and Formosa.

($1 = €0.71)

For more on PE, visit ICIS chemical intelligence

By: Michelle Klump
+1 713 525 2653

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