21 March 2014 10:03 [Source: ICB]
Tight supply, resulting in high prices, has been the hallmark of the US polymers markets in the first quarter of 2014. Many market participants expect the trend to continue until 2016, when the first of the proposed shale gas-related expansion projects are scheduled to be completed.
In the polyethylene (PE) market, the year began with prices up 16 cents/lb ($353/tonne)for high density polyethylene (HDPE) and prices for low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) up a total of 14 cents/lb from where they were in December 2012.
The harsh US winter has suppressed polymer demand
In February alone, at least three companies made announcements about force majeure events or production allocations, while a fourth company extended a planned turnaround at one of its plants. Those supply disruptions have kept supply tight enough that buyers have not had much leverage to demand lower prices.
Even when production and logistics problems are solved, sources say they expect the US PE market will remain a sellers’ market. “What do producers do when they have excess spot material?” asks one trader. “They take excess pounds and dump them in the export market.”
That trend is evident in 2013 export figures, with exports of all grades of PE increasing over 2012 levels, according to data from the US International Trade Commission. LLDPE saw the largest gain with a 6.3% increase in 2013 over full-year 2012 levels, due in large part to a 43% increase in exports in December. LDPE exports rose by 3.3% for the full year, while HDPE exports rose by 0.6%, with supply in that market hampered by a number of supply disruptions in the fourth quarter of 2013.
The rise in exports helped improve overall demand for PE in 2013, with LLDPE sales growing by 3.7% in the US and Canada, helped along by strong export demand, according to data from the American Chemistry Council (ACC). LDPE saw sales growth of around 2.4%, also helped by export demand, while HDPE sales rose by just over 1.0% in 2013. Exports are expected to continue to gain a larger share of the US PE market, particularly once new PE production is added, with the largest projects projected to go on line in 2016 (see page 31).
POLYPROPYLENE ALSO TIGHT
In the PP market, tight supply has also led to higher prices, driven primarily by tight supply of feedstock propylene. Through February, PP prices were up a net of around 4 cents/lb. Prices rose by around 5 cents/lb in January, including a 1 cent/lb margin gain achieved by producers, while prices fell by 1 cent/lb in February. The slight price increase overall for the year is at odds with the trend of the past three years, in which prices rose by double digits in the first quarter.
Most sources attributes the lesser increase so far in 2014 to the fact that prices at the end of December 2013 were 12 cents/lb higher than they were in December 2012, meaning that prices did not have as far to travel in the first quarter of 2014.
In the immediate future, many sources are predicting another slight price decline in March. However, there is the potential for prices to jump again as soon as April, when a number of planned cracker shutdowns will further limit the supply of propylene.
Demand so far for 2014 has been very weak. Much of that weakness is considered artificial, based on buyers living off of inventories they built in November and December of 2013 in anticipation of huge price spikes that have so far not materialised.
Others have attributed some weakness to slow downstream demand resulting from severe weather across much of the US, which has kept consumers at home instead of spending money. Most sources expect demand to bounce back, beginning in late March or early April, as PP buyers need to reload their stocks and downstream consumers return to the market. “I’m still pretty bullish about the year,” says one trader. “Once demand hits, it’s going to be a tsunami.”
In 2013, PP sales in the US and Canada fell by 0.8%, according to data from the ACC. For certain segments such as automotive and compounding, growth prospects remain strong. However, high pricing has kept growth in check for the commodity side of the business, sources say.
The fundamentals of the PP business are not expected to change significantly in the near term, with propylene expected to be tight until 2016 or 2017, when more on-purpose propylene projects come on stream. So far, there have been announcements of at least eight such projects, expected to bring at least 4m tonnes/year of additional propylene capacity to the market. Much of that new propylene will be aimed at the PP market, sources add.
POLYSTYRENE FEEDSTOCK HIKES
In the polystyrene (PS) market, high feedstock costs have caused prices to spike by as much as 15 cents/lb since November 2013, following similar spikes in feedstock benzene costs. The rise in prices is nearing demand destruction levels, according to some sources.
“In my mind, we are getting to levels that are not sustainable,” says one buyer, who is expecting a price correction this year as feedstock prices ease down.
The PS market saw growth of just over 1% in 2013, the first sign of growth for the industry since 2011. Much of that growth was aimed at sales into consumer and food packaging uses, according to the ACC. Growth in those sectors may continue. However, the key disposables sector faces the ongoing challenge of PS bans in cities and communities throughout the country, sources have said.
PVC HARD HIT
In the US polyvinyl chloride (PVC) market, supply has tightened as a result of stronger-than-normal demand as well as production problems caused by a spate of bad weather that has struck much of the US during the first quarter of 2014. The supply situation is expected to tighten further with planned turnarounds in March by US producers Shintech and Westlake. The Shintech shutdown will last four weeks, while the Westlake outage will last at least three weeks.
Demand for PVC so far this quarter has been described as atypical, with strong demand through what is typically a seasonal lull period. Domestic demand is seen as better than last year, while export demand faces some weak spots and uncertainty in developing markets. Seasonal demand typically picks up in March.
With the stronger-than-normal demand, market participants anticipate less of a demand spike in April, as is usually seen, but rather a more gradual increase into the peak summer months. The supply and demand situation has created price pressure in the US PVC market, with prices rising by 3 cents/lb in January and expectations that prices will increase again in February. Producers also have an additional 3 cent/lb increase announced for March.
PET BUCKS THE TREND
While prices for other plastics in the US have increased so far in the first quarter, prices for polyethylene terephthalate (PET) have either held steady or fallen. Some participants rolled over prices for January, while others saw a slight decline from December levels, based on a slight decline in the upstream paraxylene (PX) market which caused feedstock purified terephthalic acid (PTA) prices to drop.
Sources are expecting PET prices for February to fall by 2.0-2.5 cents/lb on the back of anticipated declines in upstream prices.
The cold weather so far this winter season could lead to lower demand ahead from downstream bottle customers, according to a producer. The typical peak demand season for PET begins in March or April and lasts through August.
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