US PE market disagrees on extent of drops for October contract

28 October 2011 17:01  [Source: ICIS news]

HOUSTON (ICIS)--Producers and buyers in the US polyethylene (PE) market remain at odds over October contract prices, with conflicting reports about price drops confusing the market, sources said on Friday.

Early in the month, producers offered to reduce October contract prices by 3 cents/lb ($66/tonne, €46/tonne) for all grades. Buyers said that was not enough and argued for a reduction of 5 cents/lb for the month.

At the crux of the debate is whether higher ethane prices, which producers say have caused margins to shrink, should counteract weak domestic demand.

With October nearly over, the situation is still not resolved. Producers and buyers describe the market as confused and say further clarity is not likely until next week at the earliest.

On Friday, two buyers said they were offered October contract reductions of 5 cents/lb from two US producers. Those price reductions could not be confirmed with producers.

Other market participants said they have heard of producers offering spot deals at a 5 cent/lb reduction, but not contract deals.

One buyer, who said it had not yet confirmed anything more than a reduction of 3 cents/lb from any producer, said it expects producers will eventually agree to the 5 cent/lb reduction.

"I think the fundamentals are there for it to be down today," the buyer said. "Demand is hard to come by these days."

But producers have said they are firm in their resolve to stick with a reduction of 3 cents/lb. Two producers ­– INEOS and Dow Chemical ­–  issued letters to customers on 24 October, confirming their position of a 3-cent/lb drop.

"We are aware that some third party consultants have estimated the price to go down by more than $0.03 per pound in October, we do not see this as representative of what is actually occurring in the market," INEOS wrote in a letter to customers.

"INEOS prices HDPE (high density polyethylene) based upon actual changes in supply, demand, and real cost structure … and we continually evaluate these changing market conditions," the company wrote in the letter, obtained by ICIS.

While some producers agreed that demand is down for the month, they point to higher ethane prices as reasons why prices should not fall more than 3 cents/lb.

Ethane prices have risen to more than 90 cents/gal from 70 cents/gal in March. The last time ethane sustained prices above 90 cents/gal was September 2008.

In letters to customers, both Dow and INEOS announced a 5 cent/lb increase for November. INEOS announced an additional 6 cent/lb increase for December.

Current prices for linear low density polyethylene (LLDPE) butene were at 71-74 cents/lb DEL (delivered); low density polyethylene (LDPE) film prices were at 80-82 cents/lb DEL; and high density polyethylene (HDPE) blow moulding prices were at 69-71 cents/lb DEL, for small volume buyers, as assessed by ICIS.

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

($1 = €0.70)

Additional reporting by Sheena Martin

For more on PE visit ICIS chemical intelligence

By: Michelle Klump
+1 713 525 2653

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