FEATURE: Peak polyethylene prices could last until summer despite return of US export flows

The polyethylene supply crunch that sent prices to fresh record highs March 9 may not ease back to normal levels until the summer, market sources say, even after US production restarts from April or May following recent weather-related delays.

Key European benchmark LDPE spot prices climbed to an all-time high of Eur1,800/mt ($2,139) FD NWE on March 9, doubling in price since the start of a rally that began last Nov. 11, according to S&P Global Platts data. The other LLDPE and HDPE resin grades also followed suit to reach similar all-time highs.

After US plants start up following several months of reduced supply and production issues due to the arctic freeze that hit US Gulf Coast in February, US buyers would be prioritized first, followed by Latin America, a PE producer said March 5.

"It is too early to tell," the producer said. "It is going to remain tight; the cracker outages and the monomer tightness will remain" in Europe until at least April.

This was supported by an ethylene producer source who said that firmer US and Asian prices were supporting European derivatives, which were currently able to pass on the increases.

"We are at top-of-cycle increases," the ethylene producer source said March 9. "I don't think that it will be that quick to cool. It will last until the second quarter or mid-summer. It will start [to cool] in the US first then in Europe."

The supply side has become so constrained that the rapidly increasing prices seen so far in March could mean that buyers may not be able to cope under the financial strain of operating with these cost levels. Some buyers said the prospect of having to curtail plastics production was also very real, unless the higher prices could be passed through down the chain -- a prospect some feared might be difficult in the current economic climate.

Resin producers have had difficulties managing production due to the more limited supply of monomers like ethylene, which are feedstocks for PE, and the higher demand for resin grades like PE that go into flexible packaging for food, personal care and pharmaceutical applications for which demand has spiked since the start of the coronavirus lockdowns last year.

More complications are envisaged further up the supply chain, including the larger-than-normal European cracker turnaround season set to start in Q2, with some facilities' schedules already delayed from last year because of the pandemic. With a higher number of petrochemical plants going down for maintenance, the likelihood of delays to their start-up could add to the supply tightness that will prevail until US exports flow back towards pre-lockdown levels, with the initial focus on resupplying domestic markets, according to market sources.

After hitting a $2,097/mt March high, FD NWE LDPE prices are forecast to gradually dip thereafter, dropping back to $1,333/mt by June, according to the latest data from S&P Global Platts Analytics.

"It should start easing after the US plants slowly restart after the winter storms in mid-February," Yi-Jeng Huang, global petrochemicals analyst with Platts Analytics, said March 9. "Initially, they would need to service domestic and regional demand and accrue inventory."

Supply crunch

Pressure had been building on prices since the second half of 2020 as PE producers reduced output ahead of end-of-year financial accounting, tightening the supply chain.

"We brought down inventories and had strict targets to leave the year with extremely low stocks," the PE producer said March 5.

So when supply of PE feedstock ethylene became tight early in December and January, driving spot prices to double-digit premiums, followed in February by the big freeze's impact on US production, European PE prices were sent spiraling higher.

"We had no stock whatsoever, and the competition had the same," the producer said. "Our customers saw solid demand and we rose prices quite steadily. The increases since December have been steep and successful. There was literally no spot available and those customers that have no contract commitment are not going to get any."

The same source said it had to reassess its original plan to raise March PE prices by Eur250-Eur300/mt given current demand levels and said it was now ready to close its March order book in the first week of the month, given supply shortages.

"We had to cut tens of kilotons from the original demand order," the producer said. "Contractual commitments and strategic commitments [those] we will continue to supply, where were we have the flexibility we will try [to supply others]."

A converter said March 9: "No more PE is available for purchase, so yes order stops are in place."