Price and market trends: US PE May price direction unclear on supply concerns

24 May 2013 09:17  [Source: ICB]

Force majeures by Chevron Phillips and Formosa Plastics put pressure on prices and split market opinion

May price direction in the US polyethylene (PE) market has grown more uncertain after force majeure announcements by two producers created supply concerns in the market, sources said on 16 April.

Officially, producers are seeking a 4 cent/lb ($88/tonne, €69/tonne) price hike for all grades of PE for May. However, after producers failed to implement the same increase in April, many buyers had been expecting a price drop for the month instead.

Now, after Chevron Phillips declared force majeure on PE on 14 May and Formosa Plastics declared force majeure on high density polyethylene (HDPE) high molecular weight bimodal products on 6 May, some market participants have said there is a possibility of a split settlement, with HDPE products seeing some or all of the increase.

"If any month could get a split increase, this could be it," said one trader, who predicted that May contracts might go up by 2-4 cents/lb for some HDPE grades, while low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) might see a flat settlement, or even a reduction. Other market participants agreed with the possibility of a split settlement, with another trader saying it is highly possible that HDPE customers will take the full 4 cent/lb increase for the month, based on tight supply.

"The market is tight on product," said the trader, who said it has been very difficult to obtain fresh spot offers from producers.

Some buyers said they have not yet seen evidence of a tight market. However, they agreed that the market will tighten if the force majeures last for any significant length of time.

"The question is, how long will they take place?" said one buyer. "If it is going to take place for the next three weeks or four weeks, then it can seriously impact the market."

One producer said it had initially thought the entire market might move down by 2-4 cents/lb for the month. But now, with the two force majeures, as well as strengthening demand in the domestic and export PE markets, it believes there is more likelihood for a flat settlement for the month. However, if one of largest producers, such as ExxonMobil, decides to push forward and seek the full 4 cent/lb increase, the producer said it is likely that other, smaller producers will follow.

Sources said they expect contract negotiations to continue through the end of the month.


By: Michelle Klump
+1 713 525 2653



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