Ethylene is pricey, hard to find

Staff -- Purchasing, 11/3/2005

Supply shortages are plaguing the early fourth quarter domestic ethylene market. As a result, spot ethylene prices have gone from 45¢ in September to 70¢/lb in mid-October—and look to be heading to 72¢—if you can find supply. A number of ethylene plants were shut down because of the hurricanes and have been slow in coming back online. "There is essentially no excess product to reach the spot market, given that producers are having a difficult time supplying ethylene to their contract customers," says analyst Donald D. Carson at Merrill Lynch in New York. Huntsman has invoked force majeure clauses in contracts for products made at six Texas plants damaged by Hurricane Rita. In fact, about 56% of North American capacity for ethylene, a building block chemical used in plastics, remained shut in late October. There also are some downstream supply and pricing problems. A full 17% of ethylene oxide production, is offline because of the hurricanes, according to analyst Jay Saunders of Deutsche Bank. That's why prices jumped to 50¢ and higher in spot sales. Also shut is 55% of high density polyethylene capacity, 46% of low-density polyethylene production and 73% of linear low-density polyethylene output, says Chemical Market Associates in Houston.