Volume: Good
Price: Steady/higher
The Polyethylene market is experiencing a very interesting standoff which might best be characterized as mutual indifference. Buyers and sellers have both been very quiet, each well positioned to avoid tapping the influential spot market. Still, Polyethylene purchased on contract during November has been marked $.05/lb higher. Not all PE buyers are comfortable accepting the new nickel, but complicating their negotiations is another $.06/lb increase, slated for Nov 15. While the nickel is currently invoiced, it is still not set in stone.
While some producers have indicated their intent to delay this next $.06/lb until Dec 1, most have already issued yet another $.05/lb increase for Dec 15. To recap, the Oct $.04/lb increase is solid, the Nov 1 $.05/lb increase is still challenged, but seemingly becoming a reality, and there is another $.11/lb to contend with over the next 30 days. That is totaling $.20/lb since Oct.
The American Chemical (Plastics) Council recently released October Polyethylene statistics, which revealed information supporting our sentiment towards the market which we have expressed these past 4-6 weeks. That is October resin sales were very good, from both consistently strong export sales, and particularly from strong domestic sales. In addition, it appears that Ethylene prices, which were spiking towards the mid$.50s/lb during October, squeezed resin production margins encouraging operating rates to be throttled back. The result of these activities was a huge draw of 317 million lbs from Polyethylene producer's inventories in October. The large shift of inventory downstream from producers to processors explains the absence of spot activity from both sides in November.
A picture is worth 1000 words, but I'll keep my thoughts about the accompanying chart brief. A year ago, the Polyethylene market, just coming off a sharp break, began a 3 month consolidation period, during which producers liquidated inventories that had swelled during the sell-off. With plenty of resin available, premiums between grades had shrunk. Then the market, influenced by the convergence of several bullish factors, began a long rally that has essentially lasted the balance of the year. During this period, premiums between grades have swelled particularly for scarce resins such as LDPE and HMW film grades. It started with the weakening of the US dollar, which spurred a sharp increase in Crude Oil prices which is dollar denominated world wide. Since much of the internationally produced Polyethylene is derived from Crude Oil, global Polyethylene prices have followed oil higher.
The majority of North American Polyethylene is actually derived from relatively well-priced Natural Gas rather than Crude Oil. However, excellent resin demand, nearly 20% of it from exports, has monomer producers chasing even higher priced feedstocks to satisfy demand. Several cracker outages have contributed to lean monomer supplies and higher feedstock costs for resin producers. Still, US resin has appeared relatively inexpensive to European buyers when converted back to Euro currency. This export demand has allowed North American Polyethylene producers to keep resin inventories low and operating rates high, tipping the supply/demand balance in favor of producers helping them push domestic resin prices to record high levels.
How much higher Polyethylene prices could go remains a function of the many aforementioned fundamentals plus new factors that can arise. While the Nov 1 nickel is feeling firmer, many processors remain well-positioned with inventories and will try to hold out, knowing that nothing is ultimately secured until the month has ended.
Price: Steady/higher
The Polyethylene market is experiencing a very interesting standoff which might best be characterized as mutual indifference. Buyers and sellers have both been very quiet, each well positioned to avoid tapping the influential spot market. Still, Polyethylene purchased on contract during November has been marked $.05/lb higher. Not all PE buyers are comfortable accepting the new nickel, but complicating their negotiations is another $.06/lb increase, slated for Nov 15. While the nickel is currently invoiced, it is still not set in stone.
While some producers have indicated their intent to delay this next $.06/lb until Dec 1, most have already issued yet another $.05/lb increase for Dec 15. To recap, the Oct $.04/lb increase is solid, the Nov 1 $.05/lb increase is still challenged, but seemingly becoming a reality, and there is another $.11/lb to contend with over the next 30 days. That is totaling $.20/lb since Oct.
The American Chemical (Plastics) Council recently released October Polyethylene statistics, which revealed information supporting our sentiment towards the market which we have expressed these past 4-6 weeks. That is October resin sales were very good, from both consistently strong export sales, and particularly from strong domestic sales. In addition, it appears that Ethylene prices, which were spiking towards the mid$.50s/lb during October, squeezed resin production margins encouraging operating rates to be throttled back. The result of these activities was a huge draw of 317 million lbs from Polyethylene producer's inventories in October. The large shift of inventory downstream from producers to processors explains the absence of spot activity from both sides in November.
A picture is worth 1000 words, but I'll keep my thoughts about the accompanying chart brief. A year ago, the Polyethylene market, just coming off a sharp break, began a 3 month consolidation period, during which producers liquidated inventories that had swelled during the sell-off. With plenty of resin available, premiums between grades had shrunk. Then the market, influenced by the convergence of several bullish factors, began a long rally that has essentially lasted the balance of the year. During this period, premiums between grades have swelled particularly for scarce resins such as LDPE and HMW film grades. It started with the weakening of the US dollar, which spurred a sharp increase in Crude Oil prices which is dollar denominated world wide. Since much of the internationally produced Polyethylene is derived from Crude Oil, global Polyethylene prices have followed oil higher.
The majority of North American Polyethylene is actually derived from relatively well-priced Natural Gas rather than Crude Oil. However, excellent resin demand, nearly 20% of it from exports, has monomer producers chasing even higher priced feedstocks to satisfy demand. Several cracker outages have contributed to lean monomer supplies and higher feedstock costs for resin producers. Still, US resin has appeared relatively inexpensive to European buyers when converted back to Euro currency. This export demand has allowed North American Polyethylene producers to keep resin inventories low and operating rates high, tipping the supply/demand balance in favor of producers helping them push domestic resin prices to record high levels.
How much higher Polyethylene prices could go remains a function of the many aforementioned fundamentals plus new factors that can arise. While the Nov 1 nickel is feeling firmer, many processors remain well-positioned with inventories and will try to hold out, knowing that nothing is ultimately secured until the month has ended.
