By John Richardson
THIS might amount to a little more than a ripple in a teacup if the Middle East crisis brings the global economy down (as we said on Monday, crude could go to $220 a barrel if the crisis spreads to Algeria. Equity and oil markets were jittery yesterday on the belief that that unrest could, after all, spread to Saudi Arabia).
But nevertheless, in an attempt to carry on as if life were normal we have been talking to the polyolefins market over contrasting views about the immediate prospects for linear low-density polyethylene (LLDPE).
One view is that insufficient butene-1 feedstock will continue to constrain availability - along with the wide delta with low-density PE (LDPE).
LLDPE can replace LDPE in some applications or the two polymers can be blended together in varying proportions depending on economics.
Investment in LPDE has been insufficient over recent years to meet demand and many producers have also switched plants to higher-margin ethylene vinyl acetate (EVA) production, demand for which is being driven by the solar-panel industry.
EVA is used to make the encapsulants that go into the solar panels.
"Butene-1 remains tight right now, but not quite as tight as last year. However, supply is about to be reduced as a result of the Asian cracker turnaround season that is just starting," an olefins trader told the blog.
"Another factor that is already making butene-1 tight is the switch by European crackers to lighter from heavier feed. Every cracker that can crack propane is cracking propane as opposed to naphtha, because of the wider differential in the cost of the two feedstocks" (More on this subject later).
One of our senior industry sources disagreed.
He said: "Sure, there was butene-1 tightness a couple of years ago but more recently this has been an excuse used by producers to achieve their strategies. This is a C2s game not a C4s game as ethylene costs matter a lot more.
"High-density polyethylene (HDPE) prices have gone too low over the last couple of years as a result of antidumping duties by the US against plastic bag imports from China and Malaysia."
(Confused? Here's the explanation: LLDPE and HDPE are often produced in swing plants and so although each of these polymers have different end-use applications, the relative strength of each of their markets is crucial for production-volume decisions)
"In other words, what I am saying is that the market overreacted to the duties.
"Further support for HDPE has been provided by very expensive polypropylene (PP) due to the surge in propylene costs. Injection-grade HDPE can be substituted for PP.
"HDPE pricing in Europe has subsequently recovered slightly. This should have been the case in Asia also, but demand is currently awful for all grades of polyolefins so nothing is moving - the whole market is flat.
"Swing producers in Asia, the US and Europe are, as a result, swinging back more towards HDPE away from LLDPE.
"There is no change in the Middle East because plants there that are supposedly swing only produce HDPE as it a technically easier polymer to make."
"The trouble is that a producer can look at his own output and economics in isolation forgetting that everybody is likely to be doing the same.
"So you might end up with several hundreds of thousands of HDPE suddenly arriving in the market at the same time that can send prices heading in the opposite direction.
"Once you have made the production switch it has to remain in place for 3-6 months because of orders placed by your customers. While it is easy for a producer to quickly switch between HDPE and LLDPE it takes converters a lot longer.
"These decisions are crucial because you are looking at several hundreds of millions of dollars per 1m tonnes of additional production."
To the blog this is all fascinating stuff. Maybe we need to get a life?