Rising inventories reduce price pressure

By Staff -- Purchasing, 11/4/1999

Surging demand and tight supply due to a series of unplanned production outages have been blamed for ethylene prices rising about 7¢/lb in 1999, but rising inventories have begun to dampen the upward price pressure.

"However, as the uncertainty surrounding the year-2000 (Y2K) approaches, some buyers may begin to stockpile material in anticipation of supply-related disruptions," says Earl Simpson, analyst at The pace Consultants, Inc., Houston, Texas. According to Simpson, pre-buying could cause prices to hold firm or increase slightly. Most agree that, if this happens, it will result in a lessening of demand for ethylene during much of the first quarter of next year, as buyers use up their stocks of material.

Current prices, according to buyers responding to Purchasing's monthly chemical price transaction survey, average about 24.5¢/lb for contracts and 25¢/lb for spot tags. Then, contract prices will likely rise about 0.5¢/lb in the fourth quarter to average 25¢/lb.

Buyers predict prices will drop a couple of ¢/lb to average 23¢/lb both for contracts and on the spot market during the first quarter of 2000. After that, prices will likely level out in the range of 24¢/lb to 25¢/lb.

SUPPLY: Adequate

Currently, availability is not nearly as much of a problem as it was during the summer months. Reason: Producers have been raising capacity levels, while demand is cooling off.

In supply news, nova Chemical Corp., Calgary, Alberta, Canada is constructing a new ethylene and polyethylene complex in Joffre, Alberta. It is scheduled to open during the summer of 2000.

Phillips Petroleum Co., Bartlesville, Okla., and Solvay Polymers, Inc., Deer Park, Texas, have agreed in principle to build and operate a U.S. HDPE manufacturing facility. Phillips and Solvay Polymers will each own 50% of the 700 million lb/yr facility and will share the plant's production of general purpose blow-molded HDPE.

The facility, expected to be operational in 2002, will be built on one of the companies' existing U.S. manufacturing sites.

DEMAND: Cooling

Despite a slow first half of the year, demand picked up in May, June, and July and has since approached last year's growth rate of 3%-4%/yr.

Looking long term, ethylene demand will return to more normal growth levels of 2%-3%/yr., according to data from pace.

MARKETS: Varied

Ethylene is used to produce a wide variety of chemical derivatives. The largest volume derivatives are polyethylenes, which account for about 58% of the market. Next largest end use is vinyl chloride monomer (VCM) and polyvinyl chloride (PVC) production (20%), followed by ethylene oxide/ethylene glycol production (15%).

Other applications include linear alpha olefins, elastomers, and vinyl acetate production.

Producer Annual capacity

(Corporate headquarters) (100%, thousands of metric tonnes)

Equistar 5,221

Houston, Texas

Exxon Chemical 2,767

Houston, Texas

Shell Chemical 2,498

Houston, Texas

Dow Chemical 2,354

Midland, Mich.

Union Carbide 2,093

Danbury, Conn.

Phillips Chemical Co. 2,075

Bartlesville, Okla.

Chevron Chemical 1,658

San Francisco, Calif.

Amoco 1,588

Chicago, Ill.

Eleven other producers combined 6,825

Total 27,079

SOURCE: SRI CONSULTING, INC.