US April PE contracts rise on global uptrends, higher energy

HOUSTON (ICIS)–US April polyethylene (PE) contracts were assessed up by 2 cents/lb ($44/tonne), tracking higher prices in other regions and rising energy costs.

This is bubble wrap made with polyethylene. Photo source: Al Greenwood

Increases were deferred to May for some large buyers, while some accounts took larger hikes. The market had been discussing increase initiatives of 3 cents/lb throughout the month.

PE prices have been trending higher throughout the world, primarily driven by rising crude oil prices.

NYMEX WTI crude oil prices have risen by more than $15/bbl since briefly dropping below the $45/bbl threshold in late December.

PE prices are sensitive to movements in crude as integrated producers in Asia and Europe use naphtha, an oil-derived feedstock, to produce ethylene.

Integrated producers in the US produce ethylene from ethane and other natural gas liquids (NGLs) which are produced as associated gas in shale oil wells. Ethane prices are decoupled from crude and give US producers a significant cash cost advantage relative to producers in other regions.

After a period of margin compression in the closing months of 2018, margins for US PE producers are improving as PE contract prices have been flat-to-higher throughout the first four months of 2019 while ethylene contract prices have trended lower.

April ethylene contracts settled at a decrease of 1.75 cents/lb from March. Ethylene contracts have posted a cumulative decline of 4.25 cents/lb since the start of 2019.

Ethylene feedstock costs have been weighed down by the prospect of increasing supply ahead of some pending cracker start-ups, which are adding supply to an already long market.

The following graph shows the spread between PE contract prices and ethylene feedstock contract prices:

On the demand side, domestic PE demand has been good over the past year, while export volumes out of the US have risen significantly in spite of trade tensions between the US and China.

ICIS assessed March contracts for LLDPE butene film at 55-61 cents/lb, HDPE blow moulding at 58-62 cents/lb and LDPE hi-clarity film grade at 62-66 cents/lb, all on a delivered US in bulk basis.

Major US producers of PE include Chevron Phillips Chemical (CP Chem), DowDuPont, LyondellBasell, ExxonMobil, Formosa, INEOS, Total Petrochemicals and Westlake.