Spot Polyethylene prices added another penny this week, now up at least $.04/lb so far this month. Spot pricing now matches October contract price increases, which are becoming effective, and a bit more as producers begin working on the $.11/lb (yes, 11-cents!) of price increases nominated for November. There is a $.05/lb increase slated for Nov 1st implementation and a fresh $.06/lb increase targeted for mid-month. While $.11/lb could be an awfully tall order in November, the second increase will at least serve as a deterrent to those processors intending to hold out against placing orders early next month.
While export sales are not currently driving the market, domestic processors have instead stepped to the plate with aggressive buying behavior. Although we are deep into a strong pre-holiday processing season, many converters still complain of poor finished goods orders. Still, processors have been cleaning up the seemingly well-priced spot resin offers as they arise, building a little buffer ahead of further price increases.
Processors successfully staved off the last two months of price increase efforts, but became believers this third time around. It was impossible to ignore the high-profile record energy prices which grabbed the headlines and news of additional cracker and pipeline issues further disrupting monomer supplies. For producers, solid domestic buying has come at an opportune time to carry the market and support the higher price level. Many months of running reactors at near nameplate capacity and a recently waning export market had caused producer Polyethylene inventories to swell.
Ethylene monomer trading at $.535/lb this week has dug deeply into the nicely profitable production margins that Polyethylene producers sustained through awesome export sales. Looking to maintain margins, resin producers raised export offer prices; however, international resin buyers, many of whom are entering a seasonal slow import period, were not necessarily willing to pay the higher price and large volume export sales began to stall.
Resin producers were now faced with a challenge. They needed to either lower their export offers (and concede a margin hit) to meet the bids of large volume buyers or relax operating rates to keep resin inventories from building further and potentially harm this important string of domestic price increases.
Indeed by mid week we began seeing export offers ease back a couple of cents from the $.04/lb jump earlier in the month. This has sparked buying interest, particularly from Mexico and South America, which makes sense, since those markets are so closely aligned to America's. European interest, which is more of an arbitrage transaction displacing alternative supplies based on price, has yet to resurface in high volumes.
While the domestic resin market has strong bullish momentum, signs that the cost-push rally might be running its course are starting to surface. Several previously offline crackers have at least partially returned back on-stream. While most of these crackers were only temporarily down, one had been inoperable for more than a year. On the other hand, rising producer inventories, expensive feedstocks and margin pressure (especially exports) will likely cause Polyethylene producers to throttle back resin production a bit which would help maintain their pricing power.
The Polyethylene market is currently strong, the October price increase is in, and there is a real shot at some of the November price increases to take hold. As said, there is a chance for the market to later begin coming undone, but for now the market is firm.
(The Plastics Exchange)