US ethylene derivative prices too high for spot exports

18-May-11

China is still the cheaper market for spot imports to South America as primary ethylene derivatives PE, PVC, MEG and styrene are unworkable on the spot market as US prices are too high to sell into regional import markets, as per Platts. Traders would need at most a price in the mid-60's cents/lb (US$1323/mt) in railcars for blow molding and at most 68 cents/lb FAS Houston for LLDPE to try and attract South American buyers' attention. Producers have offered exports at over 70 cents/lb for both grades of PE. For MEG, traders sought spot cargoes in the low 50's cents/lb ($1,100/mt) for export but producers had nothing for sale as the market was tight from a number of industry turnarounds. The best netback for US exports would be Europe, but demand in Europe had stalled with buyers waiting for lower prices. Europe's spot import price was assessed May 13 at US$1211-1225/mt. The US styrene price was also too high for exports with June notionally talked at 69 cents/lb (US$1521/mt) FOB. In Europe styrene for June was assessed at US$1515/mt, making exports to Europe unworkable. Spot price in Asia for H2 June was assessed at US$1436/mt FOB Korea. In the PVC market, the last spot offer out of the US was at US$1300/mt FAS Houston. The offer was said to be from Formosa, but buyers had no interest in it and instead had buy ideas at US$1150-1220/mt FAS Houston. One reason derivatives were not moving in the spot export market was that producers are seeking to increase domestic prices. For PVC and PE, producers mull increases of 5 cents/lb for May. If producers begin to offer lower for export, domestic buyers will use that against producers in their negotiations. Additionally, ethylene producers in the US have begun to switch away from using ethane to heavier feeds where they have flexibility. This yields more propylene and crude C4 from the crackers and less ethylene, which ultimately keeps the market tight and supports higher prices. Instead of making ethylene derivatives, producers could get better returns by selling spot ethylene. Spot ethylene posted a new 13 month high as recently as Friday, when it was assessed at 71.25 cents/lb. Market sources suggested the latest surge was fueled by traders short-covering and by the threat of production interruptions at Louisiana plants as a result of a rising Mississippi River.