Glut drops ethylene prices; derivatives tags follow suit
By Staff -- Purchasing, 5/7/1998
Domestic buyers of ethylene and its derivatives can look forward to more price relief. Ethylene tags are expected to decline at an average of 1¢/lb each month through year-end. The reason: rising inventory levels, new capacity, and weakened export demand.Currently, ethylene supplies are more than ample to meet demand. "Ethylene producers are producing more than we are consuming," says Tom Wisner, industry analyst for The Pace Consultants Inc., in Houston, Texas. "It will eventually catch up to them."
In addition, more capacity is coming. In the third quarter, Union Carbide and Mobil will both bring on ethylene expansions. These projects will add a little over 1 billion lb/yr of ethylene supplies to the market.
Meantime, derivative export demand into Asia is softening somewhat due to the area's recent economic upheaval. Polyethylene ex-ports should remain fairly stable, but ethylene dichloride and ethylene oxide/ethylene glycol exports could decline, according to Pace reports.
With all of this downward pressure, ethylene tags peaked at an average of 26(cent)/lb in the third quarter of 1997, according to exclusive data from Purchasing's Transaction Price Survey. In each of the next two quarters, ethylene prices dropped an average of 1(cent)/lb. By March, ethylene was down to 22(cent)/lb.
In other ethylene news, Occidental is joining the Lyondell-Millennium joint venture, Equistar Chemicals. As a result of the merger, Equistar will have ethylene production capacity of 11.4 billion lb/yr. That accounts for approximately 22% of U.S. capacity.
Here's a look at price forecasts for some of ethylene's major derivatives:
* High-density polyethylene: Tags are already falling. U.S. bulk prices for blow-molding grade hdpe peaked in second-quarter 1997 at a high of 46(cent)/lb for contracts and 44(cent)/lb for spot market purchases. By the first quarter of this year, prices were down to 38(cent)/lb. Contracts are expected to drop another penny to 37(cent)/lb in six months, and spot tags will slip another 3(cent)/lb to 35(cent)/lb.
* Low-density polyethylene: Prices are sinking. Tags for film-liner grade topped off at 47(cent)/lb for contracts and 45(cent)/lb for spot purchases in third-quarter 1997. In March, these prices were down to 44(cent)/lb for contracts and 41(cent)/lb for spot purchases. Look for tags to slide to 38(cent)/lb for contracts and 36(cent)/lb spot in six months.
* Linear low-density polyethylene: General-purpose grade tags peaked at 47(cent)/lb on contracts and 42(cent)/lb on the spot market in the second quarter of last year. In March, tags were down to 45(cent)/lb for contracts and 38(cent)/lb for spot purchases. Buyers say spot tags will drop another penny in six months while contracts will dive by 6(cent)/lb.
* Butadiene: U.S. butadiene tags topped off at 23(cent)/lb in first quarter. Tags backed off a cent to 22(cent)/lb in March; buyers say tags will fall another 4(cent)/lb by the start of fourth quarter.
* Ethylene glycol: Industrial grade ethylene glycol prices peaked in fourth-quarter 1997 at an average 34(cent)/lb contract and 33(cent)/lb spot. In first-quarter 1998, prices dropped to 30(cent)/lb. Look for tags to drop another penny through third quarter.
* Propylene: U.S. prices peaked at an average of 19(cent)/lb in third-quarter 1997. Tags dropped a penny in fourth quarter and 2(cent) in first-quarter 1998. Expect PP prices to slip another 1(cent) during the next six months.
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