Price and market trends: US polyolefins market may see stability

04 January 2013 11:23  [Source: ICB]

Less feedstock volatility is expected to usher in more stable pricing in the US polyolefins sector in 2013, while economic uncertainties are dampening sentiment about improved demand in the coming year, sources said.

Most participants in the US polyethylene (PE) and polypropylene (PP) markets are confident that both industries will see some growth in 2013. However, predictions for the coming year range from growth in line with the nation's GDP, to improvement of as much as 3-4% over 2012.

"I think 2013 will be better than 2012, it's just a question of how much better," said one PE producer. "The whole fiscal cliff situation is definitely making people more conservative in what they are doing, but if there is resolution and people wake up in January and feel better I think we are going to see a strong first quarter."

Those expectations for first-quarter strength are based, in part, on a relatively weak fourth-quarter of 2012. In both sectors, domestic demand has been weak, as buyers avoided building inventory in the last months of the year.

One buyer of polyolefins says nothing is looking good

Copyright: RexFeatures

In the PE sector, weak demand caused prices to drop in November, with some predicting an additional drop in December. Most producers have announced a 5 cent/lb increase for 1 January.

"Buyers have got to replenish," said one producer, who said it believes demand will improve enough in January to drive the prices higher.

Purchasers were less confident in the increase, saying that they expect flat pricing until at least February, when they agree prices will likely increase.

In the PP sector, buyers are also bracing for a price increase in the first quarter. However, sources said they do not expect to see the huge price spikes and drops that were seen in 2012, starting with a 16.5 cent/lb increase in February last year.

"If you look at the historical data on PP, you can see the first-quarter prices tend to go up," said one participant, who added that this is related to refinery turnarounds, which tighten the supply of propylene. "I think PP prices will go up [in the first quarter], but you will see 3-5 cent/lb increases - not 10 or 15 or 20 cent/lb increases."

Other market participants say thoughts of stability may be wishful thinking. One producer said the relative stability from June through October 2012 "lulls you into this feeling that it is going to be less volatile, ­because that is what is good for the industry."

One factor that is expected to reduce volatility in both the PE and PP sectors is the fact that there are fewer planned turnarounds announced for the first quarter of 2013 than there were in the same period in 2012.

The turnarounds in 2012 limited the supply of spot ethylene and propylene, which caused prices in both markets to increase significantly in the first two months of the year. And after those crackers came back on line, prices dropped right back down, sources said.

So far, in 2013, there are about half as many planned outages, which should help keep prices more stable for both PE and PP, sources said.

Another factor that market participants say will eventually improve demand in both the PE and PP markets is the potential for low-cost feedstocks to bring manufacturing back to the US.

While there is no great statistical evidence of a major manufacturing resurgence so far, market sources said that there is some anecdotal evidence that suggests both markets may see new demand in the coming years.

"I don't know if it is a big trend, or what, but certainly I can point to a few instances where it has happened," said one PE producer, who said some processors that had been importing finished flexible films from Asia are now manufacturing their own in the US.

"If ethane continues to be very cheap, and there is no reason to believe it is not going to be we can sell anywhere in the world."

For the PP market, many market participants said low-priced feedstocks are still a few years away, when more of the proposed ­on-purpose propylene plants, including propane dehydrogenation (PDH) units announced by ­Formosa and Enterprise Products, are scheduled to be built.

"When that happens, the US will be the low-cost producer and will become a mini Middle East," said one market participant.

But with US and global economic recovery still in the distant future, some market participants are a little more reserved in their outlook for the polyolefins sector.

"Honestly, what I am hearing about the economy, nothing is looking good," said one buyer. "I'm just not optimistic."

By: Michelle Klump
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