NPE ’18: PE prices steady in Latin America despite bearish expectations

HOUSTON (ICIS)–Polyethylene (PE) buyers in Latin America have yet to see price reductions stemming from increased supply in the US Gulf Coast or from the currently low ethylene prices.

Heading into this year’s National Plastics Exposition (NPE), buyers would like to see declining PE prices in May, but there is no guarantee this will happen.

Producers seek steady prices in May, and one has even announced May price increases in Brazil for all grades of PE.

Dow Chemical is seeking to increase the price of all PE resins by Brazilian real (R)200/tonne (about $57/tonne) effective 1 May.

Some market participants see this as an attempt to keep prices from falling in May.

Braskem, the sole PE producer in Brazil, has not announced price moves for May.

Buyers expected lower prices early in 2018 but found price hikes instead. The first three months of the year had a number of price hikes based on tight supply.

A decline in US Gulf PE exports to Latin America created shortages of some grades and elevated prices for all. Some grades were practically unavailable in Latin America, and their prices have skyrocketed. Such was the case of high molecular weight (HMW) high density polyethylene (HDPE) and low density polyethylene (LDPE) fractional melt.

The countries most affected by the shortages were those in the Pacific coast of Latin America, where domestic production is small or non-existent. These net-buyer countries depend on regional and extra-regional imports to supply their needs.

Hurricane Harvey delayed the coming online of several new crackers in the US Gulf Coast and caused some plants to stop operations for a while.

In addition to production losses, there were inventory losses during the flooding that paralysed the area, and many rail car operations remained impaired long after the storm passage.

Domestic US Gulf producers concentrated on supplying the local market, and exports declined. Much of the restored production has been devoted to rebuilding inventories in the US Gulf, extending the PE scarcity in Latin America.

Mexico was one of the first countries affected by the supply shortages. Although prices went up in this country, increased competition among local suppliers kept the price increases in check. Buyers complained that prices have not come down enough in April, despite active negotiations.

Another factor affecting demand in Latin America is the status of local economies.

Brazil continues to suffer the effects of its “lava jato” corruption probe, which caused the impeachment of one president, Dilma Rousseff, while sending to jail former president Luiz Inacio Lula da Silva. He was running for president in this year’s election. Brazil has struggled for years with negative GDP growth.

Corruption probes have also surfaced in Peru, toppling another president on corruption charges.

The economic woes of Venezuela are well known. Falling oil revenues have brought a tide of red ink to the government coffers.

This in turn has created shortages of food, medicines and raw materials that are having a large impact on the population. The problems of Venezuela are now affecting other countries because there is a steady influx of Venezuelans into Colombia, Brazil and Ecuador, to name a few of the most affected countries. The Venezuelan migration is overwhelming resources in those countries.

Problems exist in Argentina, where the Central Bank is trying hard to keep the US dollar from rising too much. Foreign investment in Argentina has been speculative in nature and goes out as quickly as it went in, creating wild swings in financial markets.

Inflation and labour union negotiations complicate the chances for a price decline in Argentina.

All of these problems are having an impact on polymer’s demand. Buyers are ready for lower PE prices in May, but may lack the alternatives to increase their bargaining power with producers.

Polyethylene prices in Latin America have not seen much impact from lower ethylene prices or increased production in the US Gulf.

Sponsored by the Plastics Industry Association (PLASTICS), NPE2018: The Plastics Show takes place on 7-11 May in Orlando, Florida.

($1=R3.48)