US May PE contracts decline on ample supply, global downtrend

Focus story by Lane Kelley

HOUSTON (ICIS)–US May polyethylene (PE) contracts settled down 3 cents/lb on Friday, marking the first monthly decline this year on a combination of higher inventories and weaker global markets.

The reduction stemmed from two producers – NOVA Chemical and Formosa Plastics USA – who separately told customers last week that they would lower prices by that amount.

Other producers followed this week in separate discussions with their customers, sources said.

The May drop represents the first confirmation this year of what many sources have been expecting – that prices have to come down at some point because of additional PE capacity coming online. Four new PE plants, all in Texas and totalling 3.5m tonnes/year in capacity, are expected to start up by the end of this year.

Two of the plants total 1m tonnes/year or more each, being built by ExxonMobil and Chevron Phillips. Dow Chemical is building two new projects in Freeport total ling 750,000 tonnes/year, and Sasol/INEOS has a 470,000 tonne/year HDPE project in LaPorte expected to come up in the fourth quarter.

As for the June PE outlook, contract prices have trended flat to down over the past five years, with three rollovers (2014-2016), two reductions (2011-2012) and one increase (2013).

A producer said he did not have much insight as to what might happen next month. The producer said rising oil prices earlier this month appeared to support a PE increase, but then oil prices dropped back below $50/bbl.

“It’s hard to see what is going to drive prices up from here,” the producer said.

Buyers and other PE sources pushing for a drop cited falling global PE contracts and slipping US export prices, plus industry data showing PE inventory climbing near a two-year high in April.

PE contracts rolled over in January and April, rose 5 cents/lb in February and rose by 3 cents/lb in March.

The May drop leaves high density (HDPE) blow moulding prices at 74-76 cents/lb.

One veteran PE watcher said that while most producers made the 3 cent/lb cut for May, there has been an issue over cutting prices for HDPE injection grade material, which has been tight to scarce.

However, other sources did not confirm that and said prices had dropped across the board.

Major US PE producers include Chevron Phillips Chemical, Dow Chemical, ExxonMobil, Formosa Plastics, LyondellBasell, NOVA Chemicals, Total and Westlake.