US polyethylene margins under pressure

OREANDA-NEWS. July 23, 2015. US polyethylene producers will seek to restore margins to levels seen before the late 2014 collapse in crude prices over the next six months.

But falling crude futures and weaker global demand this summer has so far stymied their efforts.

In the first two months of 2015, prices extended fourth quarter losses, falling 9?/lb. Producers restored 5?/lb of margin in May, bolstered by strong export demand fueled by production outages and high naphtha prices in Europe and Asia. Yet even with the May increase, June polyethylene prices remained 11?/lb below the peak price in October 2014 and 8?/lb below June 2014 levels.

Producers called for an additional 5?/lb increase in July, but any momentum for that increase faded as many overseas production problems are now resolved and Asian and Middle Eastern prices fell, making US material less competitive.

"No export market is pulling demand right now," said one producer. "You look at China and there is no arb there. The arb into Europe appears to be open still, but not wide. You can sell into South America, but not at a price that would warrant a price increase."

Producers are unlikely to suggest another increase until demand outpaces supply, which may not happen until August or September, when seasonal domestic demand returns.

Year-to-date demand through June is up 5.8pc from 2014 levels, according to data from the ACC Plastics Industry Producers' Statistics Group, as compiled by Veris Consulting. Exports averaged about 19pc of sales for the first half of the year. Production is also up by 4.6pc versus 2014, rising at a slightly slower pace than demand.

With fewer production problems than last year, supply has been fairly available, with only pockets of periodic tightness for certain grades. A few maintenance turnarounds are planned for the coming months. But barring major unplanned incidents, supply and demand appear balanced for the near term.