Bi-Weekly Plastics Report - December 8th, 2023

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Bi-Weekly Plastics Report - December 8, 2023
 
Howard Rappaport
Senior Advisor, Plastics
 

Polyethylene (PE)

  • PE prices held flat once again as supply conditions have improved and upward pressure on ethylene prices has subsided.
  • Natural gas and crude oil prices have both remained under pressure throughout the month of November and December. Ethane prices are moving downward along with natural gas, due to warmer-than-expected weather and sufficient inventories.
 
Supply
Steady US operations during the month of November with no reported outages. PE plant operating rates approached 85% and are expected to increase slightly by year-end. The winter season is underway, and the prospect of damaging winter storms is increasing. Unexpected operational issues are always a potential risk when weather conditions are unsettled. Buyers indicate that all PE products are readily available, and no resin grade is short in supply. Baystar is reportedly running at full rates, and Nova has fully recovered from the operational issues that prompted two force majeure events in September.

Demand

Domestic demand plus imports increased by almost 9.0% from September to October. US exports have slowed down a bit, however YTD totals are reflecting 26% growth when compared to the previous year. Demand for HDPE blow-molding applications (the largest HDPE end-use market) increased over 9.0% in October but is actually down by 8.2% YTD versus 2022. Regionally, North America experienced an increase in imports from South America, rising by a substantial 38.0%. YTD through October, PE demand has dropped by 8.9% when compared to last year.

 

image 81675
Data Source: American Chemistry Council, Chemical Market Analytics by OPIS 
image 81679
Data Source: American Chemistry Council, Chemical Market Analytics by OPIS

Feedstocks

Ethylene supply continues to return to the market as the outages that have constrained US Gulf Coast ethylene operating rates since September are resolved. Nameplate operating rates for November have improved to around 80%. However, maintenance turnarounds by four major producers in the first quarter of 2024 will constrain operating rates once again. Margins continued to be supported by lower integrated cash costs from lower ethane prices. However producer margins are expected to drop over the next 90 days mainly on the back of higher seasonal ethane prices.
Price Outlook
US PE prices settled flat in both October and November after two successive increases of 3 cents per pound in August and September. Most producers have pushed their November price increase initiatives to December, however the likelihood of an increase this month is diminishing day by day. If conditions continue to weaken this month there may even be the potential for a price decrease in December.
Polypropylene (PP)
  • PP prices were up 5 cpp on the month as PGP prices have remained supported. Producers have kept the brakes on many plants, maintaining lower-than-average operating rates.
  • Propane prices have recovered from their lows in the middle of November, but fundamentals remain far from bullish. PGP strength has been likely due to unplanned PDH outages which have kept propylene inventories tight.
 
Supply

North American PP October operating rates were just over 76% (making October the fifteenth consecutive month under 80%). Days of inventory in October were 38 days, up from the prior month’s 35.8 days. Year to date through October, North American production is ahead of the same period last year. There are no planned outages in the coming months, and this could contribute to more spot availability in the market during Q1 2024. Producers are actively managing their inventory levels by operating at low production rates to help keep margins from declining further.

Demand

PP demand is facing some headwinds for growth this year as demand trails last year’s total January–September 2022 by 6.0%. The re-seller segment is the highest-performing segment, showing growth of over 11.0% YTD September. This continues the trend of more competition by third party seller as producers look to them to sell excess product into the market. Nonwovens and packaging sheet are likely to end the year with positive growth, but the rest of the segments are likely to end the year in negative territory.

 

image 81677
Data Source: American Chemistry Council, Chemical Market Analytics by OPIS
image 81678
Data Source: American Chemistry Council, Chemical Market Analytics by OPIS
 
Feedstocks

US polymer-grade propylene (PGP) prices saw an additional 5 cent per pound surge in November. The rise in propylene prices is impacting demand negatively and putting pressure on margins going into 2024. On-purpose propylene supply in North America was tight in November as an unplanned outage continued at Enterprise PDH-2, which had been down since October due to operational issues. Producer margins are expected to decrease with relatively flat cash costs as PP is expected move lower, in line with the propylene movement.

Price Outlook

North American polypropylene contract prices increased 5 cents per pound in November and are expected to continue to move in line with PGP monomer movement through year end. The 5 cent increase in November comes on the heels of a 4 cent increase in October, and now totals 13.5 cents of increases over the past 90 days. This is putting tremendous pressure on North American PP competitiveness in the global marketplace.  PP continues to be at the mercy of feedstock pricing, which has been the case for most of 2023. PP prices are being driven by the  direction of propylene monomer.

Related tags: Energy

Howard Rappaport is an independent consultant to the FCM Division of StoneX Financial Inc. (“SFI”) focusing on plastics market commentary.  He does not have a personal futures trading account.  All forecasting statements made within this material represent the opinions of the author unless otherwise noted.  


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