AFPM ’19: Latin America PE prices not rising despite initiatives

HOUSTON (ICIS)–Heading into this year’s International Petrochemical Conference (IPC), Latin America polyethylene (PE) prices appear stable at the current levels, with little chance of rising despite price increase initiatives heard every month since January.

The price increase initiatives are clashing with an oversupplied PE market that provides alternatives to buyers.

The increases end up being postponed every month. Dow Chemical had a 3-cent/lb increase ($66/tonne) announced for 15 March. A few days later, the company announced a 4-cent/lb increase effective 1 April for the Andean Region and Central America.

The letter does not specify whether the company will increase prices by 7 cents/lb in a 15-day period. More likely, the second increase replaces the previous one.

The increase letters provided no explanation supporting the increase. Ethylene prices are not going up, and inventories remain at record levels.

Buyers said the measures may be to reverse the prevailing downtrend on prices. There is proliferation of offers from traders and distributors that continue to enhance buyer alternatives.

In past years, the first months of the year used to bring price increases for ethylene and PE because of cracker maintenance, and because stocks in the hands of transformers ended December at very low levels.

With packaging warehouses operating at high capacity, the only supply problem has been congestion that resulted in shipping delays.

For buyers, the key has been ample availability of PE resins from multiple suppliers and from several regions. This has become a buyer’s market.

During the month of March, prices have declined in Mexico and in Brazil, and have been mostly steady in the US Gulf.

Demand is slow in Argentina, where the economy is struggling with the prospects of a 1.6% contraction in gross domestic product in 2019. Inflation is on target to be near 50% at the end of the year if the trend of the first two months continues.

Countries in the Andean region get offers from regional producers, Asian producers and from the US Gulf, with an abundance of sellers that keeps growing with every passing month.

US Gulf PE inventories remain high and likely to grow in coming months. There is some congestion in US bagging facilities. This is delaying exports, but bulk domestic deliveries are flowing normally.

Summer vacations have affected demand for plastic resins in the southern hemisphere. Market participants expect demand to rise at the end of March, when schools return, but that is not guaranteed.

Linear low density (LLDPE) prices have declined the most in recent months. The above chart shows a large gap between protected prices of Argentina and Brazil, in comparison to those of an open market like Mexico.

Production of PE plastic resins is expected to continue growing the US Gulf this year and next, and supply is growing faster than demand. Hence, prices have fallen sharply in recent months with little chance of recovery.

The only support for higher chemical prices is the recent surge of crude oil prices. West Texas Intermediate (WTI) prices are approaching the $60/bbl level, and this is bringing adjustments in Asia, where ethylene comes predominantly from petrochemical naphtha.

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 24-26 March in San Antonio, Texas.

Focus article by George Martin