Deteriorating ethylene and PE markets form a viscous circle of falling prices

23-Oct-08

Lackluster downstream demand from Asia has pressured ethylene prices to fall again. This will lead to yet another round of price corrections. Over the past weeks, ethylene prices have been hit by passive buyer demand resulting in weakening price of all poylethlyenes. Falling ethylene prices in turn result in bearish market sentiments and falling PE prices. Even as seller's offers drop below US$750/MT levels, ethylene finds few buyers, as they prefer to wait in the sidelines. PE users are wary of stockpiling feedstock in the current scenario of global economic weakness, and uncertain demand. Most of them have reduced output as they seem to be already saddled with huge inventories as most processors were caught unaware by the sudden financial and economic collapse. Major ethylene players are reacting by reducing run rates at crackers. The latest to join the bandwagon being South Korea's YNCC and KPIC - both have announced a 20% cut. Sellers from Middle East, Malaysia, South Korea and Thailand have been heard to quote lower CFR China offers for Polyethylenes. HDPE offers have been down revised to linger lower than US$1100/MT, and CFR Asia offers for LLDPE were being heard at US$1040/MT. Release of PE settlement price by domestic Chinese producers has added to the market disorder.