FocusDelays at US bagging facilities contribute to PE tightness

01 August 2012 17:22  [Source: ICIS news]

HOUSTON (ICIS)--Some tightness in the US polyethylene (PE) market can be attributed to a backlog at resin bagging facilities, which cannot bag the material fast enough to keep up with increased export demand, sources said.  

PE pellets are bagged before they are exported to foreign customers. The backlog at the bagging facilities is delaying exports to those customers.

Buyers, traders and producers all agree the PE market has experienced unusual tightness in recent weeks, brought on by strong demand in the domestic and export markets.

"In general, PE is probably over the last two weeks been tighter than I have seen it in the last 10 years," said one broker active in the domestic and export markets. "We could get more product during a hurricane than we can get now."

US PE sales volumes rose to around 3.4bn lb (1.5m tonnes) in June, according to one source, referring to the American Chemistry Council's monthly resin statistics. That number represents a significant boost from May, led in part by very strong sales in the export market.

The demand boost came following two months of price declines in May and June, for a total of 14 cents/lb ($309/tonne, €250/tonne) down from April levels. The price decline put US material in line with the lowest prices in the global market, boosting demand for US goods and tightening the market.

However, some market participants have said some of the tightness may be artificial, and related to a shortness of railcars. The railcars are being held at bagging facilities full of resin, waiting to be bagged so it can be shipped for export, sources said.

"With the rush to export now, there's a fair amount of rail congestion around the packagers, which happens every time there is an upturn in demand," said one producer. "People are having trouble getting product packaged and shipped."

While producers may have product for sale, they cannot get it to the traders because of a lack of railcars, said one trader.

"Railcars are not returning fast to producers so they are having trouble filling orders that were supposed to deliver during July," the trader said. "The market is now confused by this logistics problem and it's emanating overly tight sentiment."

The congestion has caused delays in material being delivered overseas, which has some buyers in Europe and Latin America worried that they will run out of material before they receive their orders, sources said.

"There are sudden inquiries from buyers for prompt shipment," one trader said.

The situation has allowed producers with bagged resin on hand to ask for even higher prices for material ready to ship immediately, according to one producer.

"There is more urgency," the producer said. "It also makes people willing to pay a little bit of a premium if you have bagged material."

The backlog at the bagging facilities is expected to ease once export demand begins to slip, sources said. However, when that will happen remains up for debate.

Some market participants said they expect to see July's export numbers fall well below June, which was boosted with end of quarter sales.

"This is not a trend," said one domestic buyer. "Just wait until you see the July numbers."

Others say the US's low-cost feedstock advantage will keep exports from the country in demand for a while.

"US pricing is globally low," said one producer, who added that strong export demand should continue through the second half of the year, particularly in emerging markets.

($1 = €0.81)

By: Michelle Klump
+1 713 525 2653

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