Producers propose additional price hikes
By Staff -- Purchasing, 10/7/1999
Polyethylene (PE) producers recently proposed new price increases for September, which will take effect for most buyers in October, depending on price-protection agreements. Many suppliers have announced 5¢/lb increases on all PE grades. But some suppliers, led by Solvay Polymers in Houston, Texas, have split their proposal (3¢/lb effective in August and 2¢/lb effective in September.)The current pricing situation for PE is very cloudy. Analysts and buyers aren't so sure that the market will bear price increases at this time. Many buyers believe increases were announced in support of summer increases. And most analysts are waiting to see what will happen before making any large bets.
"Demand for PE has eased up a little bit," says Earl H. Simpson, petrochemicals analyst at The Pace Consultants, Inc., based in Houston, Texas. Simpson attributes the let up to "summer doldrums"--typical for the PE industry. "Also, we expect that ethylene prices will level off in the fall, which may take some of the steam out of the polymers price increases," Simpson says. "But I expect a strong fourth quarter in terms of PE demand and pricing."
PE prices already have risen substantially this year, following a dismal 1998. Simpson says that the PE market is seeing about 10% annual growth for combined high-density polyethylene (HDPE), low-density polyethylene (LDPE), and linear low-density polyethylene (LLDPE) sales so far this year.
Purchasing's forecast: Look for prices to remain stable or rise slightly in the fourth quarter as demand increases and buyers stock up on material to guard against possible Y2K disruptions.
Contracts for domestic bulk HDPE for blow-molding applications currently average about 37.2¢/lb, according to Purchasing's monthly survey of chemical buyers. Spot prices average about 36¢/lb.
Buyers forecast prices will rise to 38¢/lb and 37¢/lb, respectively in the fourth quarter, before capacity expansions and a stalling of demand cause prices to stabilize. Look for contracts to average about 35¢/lb and spot tags to average about 34¢/lb in the first quarter of next year. These prices should hold or increase slightly through the first half of next year.
For film-grade HDPE, contracts average about 47¢/lb and spot tags are about 1¢/lb more than that. Look for prices to climb as high as 49¢/lb for contracts and stay even at 48¢/lb on the spot market in the fourth quarter, before falling to an average of 46¢/lb (contracts) and 45¢/lb (spot tags) in the first quarter of next year, according to buyers.
Buyers of injection-molding-grade HDPE will see contract prices rise from an average of 37¢/lb currently to about 38¢/lb by year-end. Spot-market buyers see tags averaging about 35¢/lb in the third quarter and increasing by 1¢/lb in the fourth quarter. In the first quarter of 2000, buyers expect prices to stabilize at 36¢/lb for contracts and 34¢/lb for spot tags.
Contracts and spot tags for bulk LDPE (extrusion grade) will follow a similar trend. Contracts currently average about 46.3¢/lb, and spot tags are about 44.2¢/lb. Buyers should look for prices to rise to about 48¢/lb for contracts and 46.5¢/lb for spot tags in the fourth quarter, then drop to averages of 46¢/lb and 44¢/lb, respectively, in first-quarter 2000.
Film-liner-grade LDPE contract prices will increase slightly in the fourth quarter to about 45.5¢/lb. According to buyer data, spot tags will increase by about 1¢/lb in the fourth quarter before softening at 43¢/lb in the first quarter of next year.
Contracts and spot tags of film-grade LLDPE will increase from the current mark (about 43¢/lb on average) to about 44¢/lb later this year, according to buyers. Like the other PE grades, LLDPE contracts and spot tags will soften slightly in the first quarter to about 43¢/lb.
General-purpose-grade LLDPE material prices currently average 49¢/lb for contracts and 38.8¢/lb on the spot market. Look for contracts to remain where they are in the fourth quarter, according to buyers' data. From there, buyers expect prices to drop about 1¢/lb for contracts and spot tags in the first quarter of next year.
Unplanned outages have had an effect on PE supply, forcing prices up. In August, Exxon Chemical Co. ended a month-long force majeure situation for LLDPE. Exxon declared force majeure in mid-July because of mechanical problems at its Baton Rouge, La., plant.
Mobil Chemical Co. also ended a force majeure declaration at its Beaumont, Texas, plant. Mobil customers had been on 85% allocation since May because of operating difficulties, according to an industry source.
In supply news, Equistar Chemical Corp. has a 480 million lb/yr HDPE expansion under way at its Matagorda, Texas, facility. The company reports that operations and the expansion are on schedule and product shipments will begin in October 1999. The expansion will increase the plant's capacity to 1.53 billion lb/yr and the company's total HDPE capacity to 3.7 billion lb/yr.
For HDPE, there are nine major domestic producers, with a total capacity of about 5.1 billion lb/yr. The largest HDPE producer in the U.S. is Equistar, with an annual capacity of 1.4 billion lb, according to 1999 producer data from SRI International, a chemical consulting firm located in Menlo Park, Calif.
There are 10 major domestic producers of LDPE, which account for about 3.7 billion lb/yr of total U.S. capacity. Again, the largest producer is Equistar with 823 million lb/yr.
For LLDPE, there are 13 major producers in the U.S. SRI International's data indicate that, because many companies operate swing plants that may produce either HDPE or LLDPE as needed, it is difficult to determine the exact capacity of LLDPE. However, Union Carbide has by far, the highest current swing capacity (about 1.4 billion lb/yr). Dow Chemical currently produces 480 million lb/yr of LLDPE and 220 million lb/yr in swing capacity. Dow Chemical stands to gain significantly if the acquisition of Union Carbide is finalized in the early months of next year.
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