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Polyethylene Market Update in North America, August 13, 2007

https://www.chemnet.com   Aug 15,2007 The Plastics Exchange
Volume: Very strong
Price: Steady
The spot Polyethylene market was considerably more active than we expected for the first full week of August. While several producers have held their spot offers $.04/lb higher in line with their increase nominated for August contracts, others have kept their spot offers steady to just slightly above July levels. Our trading volumes have been strong; you can imagine which group of offers has caught the attention of spot buyers.
This current $.04/lb price hike follows a well contested but widely implemented July $.05/lb increase. Since it seemed unlikely to also achieve this $.04/lb increase in quick succession, this past week most producers postponed this current effort until September. However, to show their commitment toward achieving it next month, several producers also issued a fresh $.05/lb price increase for September 15th.

The timing of the mid-September increase applies a lot of pressure to resin buyers, who theoretically need to place their offers by early next month or risk paying $.09/lb higher come September 15th. This would be the case if both increases were to take hold as now scheduled; however, it takes more than just price increase nominations, even when issued in a series, to bring them to fruition.

The supply/demand balance and feedstock costs are always major influencing factors, but during the past several months, extraordinary export demand has been the driving factor to provide producers with pricing power. Excellent export demand, particularly from Europe and South America, has allowed North American Polyethylene producers to keep inventories low even with higher operating rates. It has also afforded them good margins amid rising feedstock costs. Can they keep it all going?

Even though the August price increase has been postponed, the spot market is still snuggly supplied. While there has been a fairly consistent flow of well-priced of 1-2 railcar offers, larger volumes of Generic Prime resin are still offered a few cents higher. It does not seem that producers will facilitate large inventory builds downstream ahead of the increases.

As we approach mid-August, European traders will likely peer at the market from their holiday break to evaluate their positions and assess market fundamentals. If they return as strong buyers, this North American Polyethylene market can stay charged, and if so, prospects for this next increase will need to be seriously considered.
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