Monthly Resin Report: Lingering Plant Outages Disrupt PE, PP Supply in February

Zachary Moore

February saw ongoing unexpected supply issues with both polyethylene (PE) and polypropylene (PP) amid some lingering outages from the late 2022 freeze and tornado strikes in the Houston area. High-density polyethylene (HDPE) supplies were especially tight, with some-freeze related damages keeping one plant down for an extended period while a direct tornado strike also caused a long outage at another HDPE plant. Most recently, a third producer experienced an unexpected mechanical failure leading to a force majeure declaration on some grades of HDPE.

Other grades of PE and most PP grades remained comfortably supplied, with outages being offset by persistent weakness in demand. Outages notwithstanding, average industry operating rates rose for both PP and PE in January, resulting in rising inventory levels for both products overall.

At the time of writing, February negotiations for PE contracts were ongoing, with sellers seeking to implement a 3 cent/lb increase for February following the 3 cent/lb increase in January, while buyers are seeking to keep pricing flat for the month.

The January increase was supported by some unexpected production issues along with the delayed startup or ramp up of new PE capacities, which kept the market a bit tighter than many players had anticipated. More availability from new capacities had been expected.

Resin exports drop

Exports as a percentage of total sales fell to around 42% in January from 48% in December amid ongoing weakness in overseas demand and the end of the fire-sale prices that had been seen in late December. The hoped-for increase in demand following the end of the Chinese New Year largely failed to materialize, keeping average pricing in major export destinations relatively low and overall sales depressed.

The US industry will need to export around 45% of its total PE production in the coming years following the latest build-up in new capacity. Domestic demand for PE continues to remain sluggish because of a slowdown in US manufacturing activity along with widespread fears of a recession impacting consumer spending.

US ethane-based producers continue to enjoy a comfortable cost advantage over Asian and European naphtha-based producers. Ethane costs have plunged 63% between late August and late February, tracking a similarly dramatic decline in natural gas costs, as a warmer than usual winter kept gas supplies comfortable in both the United States and Europe.

PE producer margins have gained ground in recent months, as integrated ethylene production costs have fallen while pricing has been stable to higher in 2023. Annual contract resets brought pricing levels lower during the fourth quarter.

Propylene contracts rise 7 cents/lb in February

In the PP industry, February propylene contracts settled with a 7 cent/lb increase from January following the 11 cent/lb jump seen in January. Propylene costs rose as a result of some production issues involving propane dehydrogenation (PDH) plants.

The propylene industry is heavily dependent on PDH operations to meet production needs, as cracker operators are running very light, with ethane accounting for around 89% of the total feed slate in Q1. Economic models at ICIS suggest that ethane will remain the favored feedstock for crackers for most of the coming year. Refineries are running their FCC units at maximum alkylation rates, as alkylate for octane boosters is more valuable than merchant refinery-grade propylene (RGP) sales amid a shortage of octane that is expected to persist for most of 2023.

PP contracts also are not quite settled at the time of writing, as some producers are still trying to tack on margin expansions in addition to the rise in propylene values.

PP demand picked up a bit compared with the end of Q4, but it remains below the overall monthly average of 2022. Inventory levels reportedly are high all the way down to the finished-goods retailer level, suggesting that demand may remain under pressure in the coming months.

North American PP exports slowed in January after seeing a boost in December, as the jump in propylene costs has made PP offers unworkable in most major overseas markets. Following the addition of three new world-scale PP plants in North America between 2020 and 2023, the United States will need to increase its overall PP exports in order to keep the domestic market balanced.

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.