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PetroChem Wire's Daily Wire provides closing prices and a summary of the day's trading activity for US ethylene, proylene, polymers and upstream NGLs markets. Begun in 2007, its olefins and polyolefins prices serve as benchmarks for a number of physical and swap contracts that trade on the CME/NYMEX Clearport system.

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Year in Review

US PE spot prices end year in a slump, with further expansions on the way

HOUSTON, December 27, 2018 (PCW) – US PE spot prices are ending 2018 near multi-year lows, weighed down by higher output, softer international demand, and lower energy markets.

The benchmark grade of HDPE for blow molding applications (HDPE BM) was at 40.5 cpp FOB Houston as of December 26, according to PetroChem Wire data, its lowest level since March 2016.

HDPE BM HIC started 2018 at 50 cpp FOB Houston and traded as high as 58 cpp in March before entering a long, steady slide around midyear.

Downward pressure has focused on PE film grades

Most of the new PE capacity additions of past two years have been focused LLDPE grades, which are primarily used in film products, and as a result the benchmark LLDPE butene film grade has seen its price erode faster than HDPE this year.

LLDPE butene film began the year at 48 cpp FOB Houston and has recently traded at 37 cpp, with some larger volume transactions priced in the mid-30s cpp in November and December. Prices at these levels have not been seen since late 2008 and very early 2009.

LLDPE butene film historically has traded at a small premium to HDPE BM, but that price structure has reversed, perhaps for the long term. LLDPE butene film spot prices averaged a 2-3 cpp premium to HDPE BM in 2016, but this year LLDPE butene film has shifted to an average discount of 4-5 cpp.

LDPE film has also seen its premium to HDPE BM disappear, at least in the export market. Dow started up a new LDPE plant in Plaquemine, LA early in the year. Also, traders say that export demand for LDPE has slackened in 2018, partly because film processors are shifting towards more metallocene-based LLDPE resins (mLLDPE) in their raw material blends.

Market participants look for a floor

The PE market has shown signs of stabilization in December, perhaps marking the end of a prolonged decline. US PE suppliers have announced plans to implement a 6 cpp price increase in January, and there are several factors that could drive a price rebound in early 2019.

An uptick in crude oil prices would bolster international and domestic PE market sentiment, pushing buyers off the sidelines while raising naphtha feedstock costs for PE producers overseas. Also, PE demand in Asia typically strengthens in the run-up to the Lunar New Year holidays.

On the other hand, China’s growth is expected to slow in 2019, especially if there is no resolution to the trade standoff with the US, and the country’s infrastructure spending that drove strong HDPE pipe and conduit demand through much of 2018 has reportedly dried up.

PE consumption by North American plastics converters has been robust this year. The Institute of Supply Management, which tracks manufacturing sentiment, has reported 13 consecutive months of improving new orders in the plastics and rubber products segment as of November 2018.

Some converters have reported slower orders in December, but it remains to be seen whether they were experiencing a temporary seasonal drag or a sustained shift in manufacturing sentiment.

More new PE capacity in the pipeline

Even if PE demand continues to grow at a healthy pace in 2019, the resin market still faces headwinds from further capacity additions, although the impact of most of these expansions will not be felt until 2H 2019 at the earliest.

Sasol is in the process of bringing online a 470,000 mt/yr LLDPE plant in Lake Charles, LA and it has an LDPE unit under construction at the same site.

Formosa on December 26 announced that it expects sustained output from its new LDPE and LLDPE/HDPE units (400,000 mt/yr each) in Point Comfort, TX in 2H 2019. Previously those units were scheduled to come up in early 2019.

LyondellBasell is expected to start up a new 500,000 mt/yr HDPE plant in La Porte, TX in 2H 2019, the first commercial-scale implementation of its Hyperzone technology.

And ExxonMobil has a 650,000 mt/yr LLDPE expansion under construction in Beaumont, TX, which has been scheduled to start up in 3Q 2019.

Barring a major production event such as a hurricane or an outbreak of severe winter weather along the Gulf Coast, the US PE market should have ample supply in 2019. -- David Barry

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