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Polyethylene Market Update in North America, July 30, 2007

https://www.chemnet.com   Aug 01,2007 The Plastics Exchange
Volume: Very high

Price: Higher

It was an interesting week for Polyethylene trading, with anxiety building ahead of contract settlements. After a busy previous week, the spot market started out quiet and steady on Monday. A heavy flow of offers began on Tuesday, prices were mostly $.03/lb higher than end of June levels. Then midweek, indices published a $.05/lb price increase for July Polyethylene contracts. Although a couple of producers pulled their spot offers, plenty of other offers remained. With spot now $.02 -.03/lb under this month's contracts, trading activity picked up.
Spot Polyethylene trading activity focused on HDPE blow molding as well as HMW, LLDPE and LDPE film grades. With the contract price gain intact, even the grades that were difficult to source became more readily available. HDPE injection grades were available most of the month at only modestly increased prices. Spot HDPE blow molding and LLDPE film grades traded mostly $.03/lb higher, and HMW and LDPE film grades were tight all month and those spot prices were $.03 -.04, maybe even $.05/lb higher.

While producers booked July contract orders all month at the $.05/lb higher price, processors expected a discount to be granted at settlement, but none was given. With spot Polyethylene trading on average only $.02-.03/lb higher during July, we feel that the spot market did not necessarily support the full $.05/lb increase for all products. While splitting an increase by product rarely works, July might have been a good month to do so. Nonetheless, resin contracts settled a nickel higher and our heavy spot trading is indicative of such discounted opportunities being recognized. Export interest continued to outshine domestic spot activity with more than 1/2 of our recent spot trades sold offshore.

Consistently strong export demand for Polyethylene has helped to kept Ethylene plants running hard, right around 100% nameplate capacity. In addition to pulling maximum quantities of light feedstock from cheap Natural Gas, high priced derivative product sales have even allowed crackers to use more expensive Crude Oil to make additional Ethylene to meet demand. Upward pressure on Ethylene remains as inventories are very low and there are turnarounds scheduled ahead.

Spot Ethylene traded right around $.45/lb all week, with the last trade at $.4475/lb on Friday. This came as July monomer contracts settled up $.025/lb at $.485/lb. Low resin inventories led by strong (weak dollar induced) exports has given Polyethylene producers the upper hand in contract negotiations. As a result, July resin contracts were increased by $.05/lb while producers only took a $.025/lb monomer cost increase. It was a $.025/lb margin gain for producers.

August Polyethylene contracts are nominated another $.04/lb higher and talk is circulating about yet another $.04/lb price increase floated for September.
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