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US export PE prices enter annual destocking season at near 10-year lows

Houston — US export pricing for spot volumes of linear low density polyethylene sits at a near 10-year low as it enters the typical destocking season this year and appears poised to hold -- or even soften further -- amid weak domestic demand and bearish global markets.

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On a global scale, PE is the most commonly used resin in plastic manufacturing. PE pricing has been under pressure in the US for much of the second half of the year, with butene-grade LLDPE declining the most since July 2, by 18.1% to close at $948/mt FAS Houston on Tuesday. That is the lowest since May 20, 2009, when it was assessed at $937/mt FAS Houston, according to S&P Global Platts data.

Often described as the most abundant in availability, LLDPE butene has reached pricing levels so low that low-density PE -- which it is regularly blended with by film manufacturers -- has begun to feel that pressure and show similar price declines.

Low-density PE pricing closed Tuesday at $1,058/mt FAS Houston, to put the H2 decline at 16.6%, with the current assessment at its lowest point since February 12, 2016, Platts data shows. "November and December are going to be a challenge for US producers," a US-based trader said recently. "China is closed to the US. India and Middle East export markets initially filled that gap and pushed up pricing, but now China has slowed and India and the Middle East are looking to other export markets.

"A big US PE correction is likely to happen in the first two weeks of November."

Export pricing for other grades of PE has also dropped off considerably to enter November at lows not seen in years, pressured by weak domestic demand amid US capacity expansion. An added factor has been ongoing US-China trade tensions, which have essentially eliminated China as an export destination for key US-produced grades of PE.

November and December typically serve as destocking months for US producers and traders looking to move resin by year end rather than pay taxes on inventories, according to market feedback. That dynamic usually manifests itself in the form of lower pricing, with the impact in 2017 lessened by the lasting effects that Hurricane Harvey had on the US Gulf Coast's PE plants and logistics.

LDPE export pricing in 2017 fell 6.8% between the beginning of November and the end of December, while the same period in 2016 saw a decline of 10.5%, according to Platts data. LLDPE butene fell 7.1% during the final two months of 2017 after the same period in 2016 produced a decline of 11.1%, Platts data shows. Current market conditions point to similar pricing tendencies, albeit with a much lower starting point due to ongoing US-China trade concerns and weak domestic demand. That those influences are converging at a time when US production is reaching new highs in capacity expansions is leading to a particularly bearish outlook from some market players.

Recent softening in Asian pricing has also begun to exert pressure on US markets, and that trend is likely to continue amid falling energy and feedstock prices, along with seasonal slowdowns in consumption, sources have said.

Since the US energy complex reached 2018 highs on October 3, ICE Brent crude pricing has shed 16.4% as of Tuesday's close, while the NYMEX assessment has come off by 18.6% over the same period, Platts data shows.

Asian pricing for PE feedstock ethylene, meanwhile, weakened by 24.6% from October 3 through Tuesday, Platts data shows.

"Asia ethylene prices are almost at the cost of naphtha, which means PE prices will drop sharply in the coming weeks," another US-based distributor said. "That will benefit Latin American import markets and hurt US producers who will have to come down to protect this relief valve that is key while tariffs [prevent] going to Asia for them."

--Phillipe Craig, phillipe.craig@spglobal.com

--Edited by Wendy Wells, wendy.wells@spglobal.com