Sticker shock is pummeling polyolefin buyers as PP nearly repeats the unprecedented price surge of January, and PE prices are also flirting with a double-digit increase.

Sticker shock is pummeling polyolefin buyers as PP nearly repeats the unprecedented price surge of January, and PE prices are also flirting with a double-digit increase. Looking ahead, geopolitical events will continue to influence the energy market and put upward pressure on global feedstock prices, say consultants at Resin Technology, Inc. (RTi) in Fort Worth, Texas (resinpros.com). Here’s more of their analysis.

PE PRICES COULD SOAR

Polyethylene prices moved up 2¢/lb in March, following the 3¢ hike in February. The possibility of prices moving up a whopping 11¢/lb has also emerged; after the 6¢ increase that was delayed from March 1 to April, several suppliers issued an additional 5¢ increase. If feedstock prices remain at or above current levels and crude oil prices continue to escalate, suppliers are likely to push through at least part of these increases.

The market is very volatile, with many different factors determining the direction of PE prices. Most of them point upward. Manufacturing, especially automotive, has been impacted by multiple plant shutdowns in both Japan and the U.S. Demand for U.S. resin exports rose more than 20%, mostly in Latin America, where outages at Brazilian giant Braskem created numerous supply shortages.

Spot ethylene monomer prices have been consistently in the mid-50¢/lb range but jumped last month close to 60¢. Monomer inventories are only at three days, which is considered low. Several monomer plants are slated to go down for planned maintenance.

Meanwhile, HDPE from ExxonMobil was expected to continue on allocation through April. Planned maintenance shutdowns of two Texas plants of LyondellBasell and CPChem could put PE in a tight supply situtuation. Domestic PE production dropped 11.1% in March while total sales increased about 4%. Supplier inventories shrank by six days to less than 30 days.

Outlook & Suggested Action Strategies
30-60 Day: Supplier inventories will play a major role in the direction of PE prices. Further inventory shrinkage could provide some leverage for raising prices, as could continued market volatility. Be careful not to cover your inventory position too far out. Prices can turn quickly and you don’t want to be caught with stocks of high-priced material.

PP PRICES MOVING UP

April polypropylene prices were expected to surge 15¢/lb higher in step with a similar jump in April monomer prices. This came after a 5¢ drop in PP contract prices in March and a 10¢ drop in spot prices between February and March. But it recalls PP’s scary, if short-lived, 17¢ leap in January.

PP suppliers cut production to bring supply back in balance with demand. March operating rates of about 70% were down from the low-to-mid-80s of January-February. Inventory levels were down also. First-quarter demand dropped by 13.3% from the 2010 average. Exports remain at minimal levels. Monomer supply is tight due to low cracker yields.

Outlook & Suggested Action Strategies
30-60 Day: How the monomer supply/demand balance plays out will be a key influence on PP prices. Expect some decline in PP demand due to high prices.

PS PRICES FALLING

Polystyrene prices were expected to drop last month, when most suppliers were delaying a 3¢ hike planned for March 1 and aiming for April instead. Falling monomer prices were expected to delay this hike even further and to bring current prices down by 2-3¢.

Although benzene prices rose by $1.11/gal, or 34%, within the first quarter (March contracts moved up to $4.39/gal), spot prices were falling in March back down to $3.38/gal, and April benzene sank even lower. April benzene contracts were expected to settle below $4/gal. Similarly, styrene monomer contract prices in March were flat to slightly lower than February’s 69-70¢/lb. By the end of March, monomer spot prices dropped to 67¢/lb, and April monomer contracts were expected to follow suit. March butadiene contracts rose 6¢/lb and April contracts looked set to rise another 5¢ to 7¢.

First-quarter PS demand was soft but spring demand is showing improvements for GPPS, HIPS, and EPS.

Outlook & Suggested Action Strategies
30-60 Day: PS prices were expected to decrease in April. Buyers can gain “pushback” leverage from falling benzene and styrene monomer prices. Watch for benzene prices to keep dropping. Buy as needed, as PS prices will soften. HIPS is expected to remain at a high premium over GPPS, due to the high price of butadiene. EPS imports on the West Coast are still very competitive and import prices should be headed lower.

PVC PRICE UPTICK

PVC prices were on the way up in April as suppliers appeared to be implementing at least 2¢ of their 3¢ March increase, based largely on higher ethylene prices. A 3¢ April hike was also on the table. And in mid-April, Georgia Gulf declared force majeure for PVC as a result of supply problems in ethylene and chlorine. The company said the situation could restrict its PVC shipments for “the next few months.”

Overall demand dropped 7% in the first quarter due to weather and reduced construction spending, along with reduced exports. Suppliers have been running production at reduced rates—down to low 70% range—to prevent oversupply since domestic demand has yet to grow significantly and China has not returned to the export market. However, the situation could change quickly, as Asia is more vulnerable to higher oil prices, which could revive U.S. PVC exports as the construction season gets under way.

Outlook & Suggested Action Strategies
30-60 Day: Look out for increased exports, as significant PVC capacity in Japan is off line. Domestic ethylene production will be key to PVC price trends.