US And Europe Polyolefins Raise Exports

By John Richardson in Houston, Texas

DESPERATELY weak polyolefin demand in both the US and Europe is resulting in an increased focus on export markets.

The US market appears to be in particularly severe distress with, as we discussed last week, large polyethylene (PE) volumes already on the water heading to China.

More evidence of these shipments emerged last week through a sharp rise in offers of US high-density PE injection and blow moulding grades in China, according to our ICIS pricing colleagues.

US demand is so weak that despite an increase in ethylene, November PE contract prices look set to fall by as much as 5 cents/lb.

Spot ethylene rose slightly last week – to 48.50-48.75 cents/lb ($1,069-1,074/tonne) from 48.00-48.25 cents/lb – on two cracker restarts and producers switching to even more ethane feedstock in order to try and protect margins, says ICIS pricing.

The US propylene and polypropylene (PP) markets are in even more distress, raising the possibility that higher PP exports will also be seen as a way of relieving some of the pressure.

Propylene contract prices fell by $14 cents/lb in October with PP prices dropping by the same amount.

Both C3s and PP are expected to fall a further 6-8 cents/lb in November.

US propylene inventory levels for the week ending 14 October were at their highest level since January 2009, despite a reduction in refinery operating rates.

Europe’s attempts to export its way out of trouble involve both low-density PE (LDPE) and PP, adds ICIS pricing.   

European homopolymer grades have been offered at below $1,400 CFR India, as against general prices in the market that were assessed by ICIS pricing at $1,420-1,480/tonne CFR India for the week ending 21 October.

This is bad, really bad.

You can see why the US producers are in a reasonable position to export given that before last week’s spot ethylene price increase, the cost of C2s had fallen by 26% in September-early October.

The Europeans have obviously no such cost advantages.

Northeast and Southeast Asian naphtha cracker operators are likely to be severely squeezed in Q4 both by higher US shipments and increased levels of Middle East exports compared with last year. As we have already discussed, Middle East output has risen on more stable production at plants commissioned in 2008-2010.

Japanese and Taiwanese cracker operators have reportedly already cut operating rates from close to 100% to around 80%.

Even the South Koreans, who normally operate pretty much flat-out regardless of market conditions, should be making production cut backs.

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