By John Richardson
SIGNIFICANT volumes of US polyethylene (PE) are heading to China as the States attempts to compensate for weaker domestic sales, understands the blog.
Despite the fall in US prices, margins remain strong, creating arbitrage opportunities.
US May contracts for polyethylene (PE) settled down by 7 cents/lb ($154/tonne, €125/tonne) from April, following weak domestic and export demand and a drop in feedstock prices, according to ICIS.
Producers had initially sought a 7 cent/lb increase for May contracts. By mid-month, several producers had offered a 4 cent/lb decrease.
However, after ethylene prices fell by 44 percent in around seven weeks, producers eventually agreed to a 7 cent/lb reduction.
Buyers are seeking a further 7 cents/lb reduction in contract prices for June as ethylene prices and demand continue to head south.
At one point last week, US ethylene for prompt delivery fell to a 20-month low, before regaining some ground on firmer feedstocks prices and slightly improved demand.
In January-May this year, North American Free Trade Agreement exports to China declined by 61 percent compared with the same periods in 2011 and 2010.
"This was the result of stronger local demand and limited supply due to turnarounds and outages," said an industry source.
An increase in US exports would exert further pressure on the already hard-pressed naphtha-based Northeast Asian producers.
"Long-term cracker shutdowns are needed in Northeast Asia to balance the market. Closing down the odd cracker for a few weeks, as with Formosa, and cutting operating rates will not be enough," continued the source.
Meanwhile, as the weakness in the China market continues, unconfirmed reports have emerged over the last few days of delays in the start-ups of new Middle East and Asian capacity.
