Chemical profile: US LDPE

14 June 2013 09:27  [Source: ICB]

Low density polyethylene (LDPE) is used predominantly as a packaging film, either on its own or blended with linear low density PE (LLDPE) to improve mechanical properties.

Blown LDPE film has good processability due to a strain hardening effect of the polymer melt caused by the long-branched, long-chain structure of the polymer. It can be used in food and medical/pharmaceutical packaging as well as in agricultural film and disposable nappies. LDPE is also used in sheathing for electrical and communication cables, and in extrusion coating of paper and board for the packaging of liquids.

In the US, demand for LDPE exports was very strong at the start of 2013, recording year-on-year increases in each of the first four months of the year, leading to a year-to-date increase in April of 7.2% over 2012 levels.

While domestic demand during that same period was not as strong, the export demand helped to reduce supplier inventory levels enough to support producers' pushing through 9 cents/lb worth of increases in the first three months of the year.

However, in late April and May, when US prices moved higher than prices in other regions, export demand waned. Weak domestic demand in the first three months of the year, created by high prices as well as a slow-starting construction season, caused producer inventories to swell to nearly 3.1bn lb (1.4m tonnes) by the beginning of April.

Supply began to tighten in May as a number of planned and unplanned ethylene cracker outages limited ethylene supply for the production of PE. Domestic demand also began to pick up during May, in part because of seasonal demand for liner-grade LDPE material used in landscaping and construction sectors, as well as shrink wrap for bottled beverages.

Supply is expected to improve in the second half as several ethylene crackers resume operations after planned maintenance. Operating rates are expected to remain above 90% for most of the next few years, before additional capacity is added to the market.

US LDPE prices rose on average by 9 cents/lb during the first three months of the year, based on a jump in spot ethylene prices and reduced supplier inventories following strong exports in December and January.

Prices held steady in April and May, despite producers' attempts to push through an additional 4 cent/lb price increase in both months. Buyers had been expecting prices to begin to decline by May, based on weak domestic demand. However, two force majeures in high density polyethylene (HDPE) and several planned and unplanned cracker outages tightened supply.

Producers will try again in June to implement a 4 cent/lb increase for all grades of PE, but buyers believe June is ripe for a decrease. US May contract prices were at 83-85 cents/lb for liner-grade LDPE film and 82-84 cents/lb for high-clarity homogenous LDPE film DEL (delivered) to small volume buyers.

LDPE can be produced via the autoclave or tubular process. The autoclave process is expensive and is being replaced by tubular technology, which is preferred because of its higher ethylene conversion rates. The process can be used to make copolymers with polar comonomers, such as ethylene vinyl acetate (EVA) polymer.

In the North American market, demand for all plastic film is projected to rise by 1.8% annually to 15.9bn lb in 2016, according to US-based market research firm Freedonia Group.

Demand growth is expected to be led by improvements in packaging technology, which has opened up new markets for film products, such as packaging for drugs and medical products, along with multi-layer packaging for food.

Demand growth is also expected to benefit from improvement in the construction and agricultural sectors - in both of which sales of LDPE grew by more than 10% in 2012, according to the American Chemistry Council (ACC).

However, it is potential growth in the US export market that is fuelling capacity expansion talk in North America. For 2012, export sales of PE accounted for roughly 17-22% of total sales for the year, according to the ACC. By the end of the decade, some analysts predict the share of US PE production going into exports could rise to as much as 42%.

There have been announcements by several companies about expanded PE capacity to be built downstream of proposed crackers or cracker expansions, which are taking advantage of low-cost feedstocks in the US.

By: Michelle Klump
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