Talk of a possible decrease on a November contract settlement had the North American polyethylene market buzzing Thursday, sources said.
There was growing optimism among several polyethylene contract buyers that they could soon see the first market-wide price drop in two years — quite possibly this month. Sources said late Wednesday that there were indications within the market a large buyer and major producer had agreed to a lower contract level for November. Neither counterparties nor settlement level had been confirmed Thursday, though multiple sources said talk centered around a 3 cent/lb decrease.
The last market-wide polyethylene contract decrease occurred in November 2012, when prices fell 2 cents/lb. Since that time, PE contracts have risen 21-23 cents/lb, reaching record or near-record levels, Platts data showed. The last increase occurred in September, when producers successfully implemented a 3 cents/lb hike.
Following flat October settlements, low density polyethylene contracts were assessed at 95-96 cents/lb ($2,094-2,116/mt) delivered-railcar basis, and linear low-density polyethylene contracts were assessed at 82-83 cents/lb ($1,808-1,830/mt) for delivered railcars. October high density polyethylene contracts were assessed for blowmolding at 86-87 cents/lb ($1,896-1,918/mt) delivered-railcar basis; at 86-87 cents/lb ($1,896-1,918/mt) for injection; and at 89-90 cents/lb ($1,962-1,984/mt) for HMW film.
Producers have pointed to strong domestic demand and tight supplies throughout the run-up in prices. After the September increase, buyer sources said there could be some pushback to reduce contract prices, and it was possible that they could get the 3 cents/lb back from producers by the end of the year.
While lower orders from well-stocked buyers could impact demand, market sources have said it would likely take large end-users shifting — or looking to shift — production away from the US to Asia, permanently creating a lost sales opportunity that the domestic market would not replace.
Sources said the film markets appeared to driving the push for lower contract prices.
Lower feedstock ethylene prices and end-of-year inventory taxes were also factors that sources said could work in buyers’ favor.
US ethylene contract prices fell 4 cents/lb for October when a full settlement was reached last week at a net transaction price at 50.50 cents/lb, sources said. The October contract price is at its lowest level since July’s price of 49.5 cents/lb, Platts data showed.
The drop was within market expectations after the shutdown of Evangeline, the largest ethylene pipeline transferring ethylene from Texas to Louisiana, and the restart of LyondellBasell’s La Porte, Texas, site expansion sent spot ethylene prices down 20 cents/lb throughout October from the record high of 76.25 cents/lb, Platts data showed.
Polyethylene traders have also seen producer offer levels for resin decrease in recent weeks, a sign that some may be looking to the export market to lower inventories. While most trader sources said prices still need to move lower for US PE to be attractive in other regions, two sources said Wednesday they were starting to hear of price levels for some exporters that would make deals from the US more competitive with Asia and the Middle East.
– Platts.com
