The month of March saw persistent tightness in the high-density polyethylene (HDPE) market, especially for high-molecular-weight (HMW) grades. Linear-low-density polyethylene (LLDPE) hexene (C6) grades were also heard to be in tight supply, while most other LLDPE and low-density polyethylene (LDPE) grades were sufficiently supplied.
Polypropylene (PP) supplies were available throughout the month, with the industry continuing to build inventory in the prior month even with operating rates hovering in the mid-70s. Average operating rates for both PE and PP were largely steady from the prior month.
March PE contract negotiations are ongoing, with increase initiatives of three to five cents per pound proposed by producers while buyers seek to keep contract prices flat for a second consecutive month.
Strong exports offset slow domestic demand
Exports as a percentage of total sales held stable in February at around 42%, with healthy export numbers helping to offset the impact of relatively slow domestic demand. Overseas markets continue to see slower demand and depressed pricing, although the US ethane advantage is keeping US PE exports competitive around the world, even if export sales are being negotiated at lower margins.
Relatively tight supplies pushed up spot export prices, particularly at the beginning of the month. As more new capacity comes online later this year, US producers will be seeking to raise exports as a percentage of total sales to around 45% compared with the 2022 average of 38.6%.
Mild winter keeps production costs down
Volume-weighted average industry cash cost of ethylene production is expected to fall about two cents per pound from February to March and remain largely flat into April. Production costs have come down 56% since August 2022, as a milder than usual winter brought down natural gas costs and resulted in adequate storage levels in both the United States and Europe.
The drop in costs, combined with firmer pricing in the first quarter, has allowed US producers to see some margin improvement relative to the fourth quarter.
PDH shutdowns tighten propylene market
In the PP industry, the market is awaiting settlement of the March polymer-grade propylene (PGP) contract, which is expected to increase for a third consecutive month on persistent supply tightness. Two propane dehydrogenation (PDH) units experienced prolonged shutdowns in the fourth quarter, creating some tightness in the propylene market.
Other sources of propylene production have been thin, with flex-crackers favoring ethane over other feedstocks. Meanwhile, refineries are limiting their sales of refinery-grade propylene (RGP) as spot RGP values are well below the octane value for alkylate, causing refiners to only release whatever RGP they cannot place into an alkylation unit.
PP contracts are largely expected to follow the movement in monomer contracts this month after some contracts saw margin increases implemented in February.
PP demand has improved relative to the fourth quarter, but remains slower relative to 2022 averages. Inventory levels rose in both January and February, even with average industry operating rates remaining in the mid-70s. Inventories are also heard to remain relatively high not just at the producer level, but all the way down the chain to the finished goods retail side.
Supply is long and would be longer if average industry run rates were higher following the start-up in Q4 of one new plant and the ramp up of another new plant after its feedstock supply came online.
About the author
Zachary Moore has 14 years of experience researching and analyzing the petrochemical markets. His primary area of expertise is in commodity polymers, but he has also covered olefins, aromatics, and intermediate chemicals used in polyurethanes. Moore returned to the United States in 2016 after working overseas for 10 years in Asia and Europe and has been responsible for covering the North American polyolefins market since 2017.
ICIS, a division of RELX, is a trusted source of global commodity intelligence for the energy, chemical, and fertilizer industries. The firm helps businesses make strategic decisions, mitigate risk, improve productivity, and capitalize on new opportunities through a global team of more than 600 experts. RELX is a global provider of information-based analytics and decision tools for professional and business customers. The group serves customers in more than 180 countries and has offices in about 40 countries. It employs more than 33,000 people, over 40% of whom are based in North America.