Expected to drop, US PE prices may rise in September

26 August 2016 20:14 Source:ICIS News

Imports from Mexico's new Ethylene XXI complex, a 50% jump in feedstock prices and other issues could reverse the polyethylene market's trend.    (Photo by Marianela Toledo/ICIS)

Focus article by Lane Kelley

HOUSTON (ICIS)--A US polyethylene (PE) buyer said this week that those waiting for lower prices may have more of a wait than they expected.

“I think the price decrease we’ve been waiting for is gonna turn into a price increase,” the buyer said.

Buyers have been expecting PE prices to drop at some point this year because of increased supply in the North American market from the ramp-up of new production at Mexico’s Ethylene XXI, operated by Braskem Idesa, and expansion projects in the US and Canada. 

But the impact from the new plant in Mexico has not really registered in the US yet, according to PE sources.

What has happened instead are a handful of critical issues for the PE market that have prompted the likelihood of higher prices in September.

The most glaring of those issues is the more than 50% jump in feedstock ethylene since early July. Oil prices have turned up again, as have PE export prices, and some production issues have tightened supply.

On top of that, a handful of shrink-film producers sent letters to their customers earlier this month citing PE producer hikes in September as the reason why their prices need to go up as well.

“They’re the ones who sealed the deal,” a PE distributor said.

Monthly contracts for US PE are expected to roll over for August – the fourth straight monthly roll – but the big issue at hand is a price increase for September.

At least five producers, in separate releases, have announced plans to raise contract prices by 5 cents/lb on 1 September.

Their customers could say no to the proposition, but sources this week said that is not likely. Some of the increase – and maybe all of it – will be accepted by the market, sources said.

The buyer quoted above predicted producers will get at least a 3 cents/lb increase, “and maybe the full nickel”.

PE price hikes have become a rare occurrence over the past two years because of huge capacity increases scheduled for the North American market.

High expectations for lower prices stem from new plants and plant expansions that could increase total PE capacity by as much as 50% in the next few years.

PE prices also have a seasonal side, tending not to increase in the fall and early winter months. Producers cut prices in September last year, for example.

In the period of 2011-2015, monthly contract prices for high-density polyethylene (HDPE) blow moulding tended to go down in the last five months of each year, from August through December.

Prices rolled over once (2011), finished the year higher once (2013), and finished the year lower three times (2012, 2014, 2015).

US sources expect the impact of the Mexican plant not to register in the US until September or October.

But a source in Mexico said this week that the impact has already reached US shores. That source said the new Braskem Idesa plant in Vera Cruz, Mexico, exported 14,000 tonnes of HDPE to the US in July.

US July PE imports have not been released yet, but June imports totaled 140,099 tonnes, according to industry data. So the Braskem Idesa export figure could represent a significant percentage of total US imports.

The source in Mexico said Braskem already has started a price war there with major competitors – Dow, ExxonMobil and Formosa – involving aggressive price-cutting in HDPE.

“Pressure from Braskem is here, finally,” the source said. “They have a lot of production; they’re visiting every account.”

Mexico's new Ethylene XXI complex was expected to drive down polyethylene prices, but that has not happened yet. (Braskem Idesa)

By Lane Kelley