Bi-Weekly Plastics Report - February 8th, 2024

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Bi-Weekly Plastics Report - February 8, 2024
 
Howard Rappaport
Senior Advisor, Plastics
 

Polyethylene (PE)

  • PE prices rose by 5 cents per pound after unplanned outages affected over 500 million pounds of production. The supply situation tightened due to the outage even with weak demand.
  • Ethane prices temporarily spiked during the winter storm, but overall remain subdued. Crude prices have strengthened over the month of January and a more bullish environment could pave the way for higher petrochemical prices in February
 
Supply
US polyethylene production increased month to month for the entire fourth quarter of 2023. December output increased by just over 5.0%. Operating rate estimates for Q1 2024 are in the 85% range. Winter Storm Heather swept through the US Gulf Coast in January and shut down several PE units. PE production declined to nearly 80% of capacity, falling by approximately 500 million pounds from December to January. As a result, several PE grades have been in short supply recently. Supply levels are expected to return to normal in the coming months.

Demand

Year-to-date PE exports (for 2023) continue to surpass the previous year’s exports by over 25.0%. Total US & Canadian domestic demand for PE is estimated to be close to 30 billion pounds in 2023. This was a 7.0% decrease from the 32 billion reported for 2022. Domestic North American HDPE demand in 2023 ended up almost 5.0% below the prior year, with both LDPE and LLDPE demand lagging as well. One of the few PE segments reflecting an increase in demand late last year was re-sellers, compounders & distributors.  

 

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

PE margins continued to be bolstered by lower integrated cash cost deriving from favorable ethane prices. Production costs will be relatively stable and margin improvement is expected in Q1 2024 (especially with the recent 5.0 cent price increase). However, the margin impact of the 5.0 cent contract price increase achieved by producers in January was offset by rising costs and increased discounts associated with 2024 supply contracts. As a result, the combination of rising production costs and increased discounting limited the integrated margin improvement.
Price Outlook
US PE prices finally settled 5.0 cents per pound following lengthy negotiations which came to a conclusion in the first week of February. On top of the January contract price increase, most PE producers have announced their intent to increase contract prices by an additional 5.0 cents per pound in February. Producers are hoping that the loss of approximately 500 million pounds of production due to unplanned outages associated with the January freeze will support their price increase efforts in February.
Polypropylene (PP)
  • PP prices were up on the month with supplies being disrupted by the winter storm that swept the Gulf Coast. In addition, propane jumped due to a spike in heating demand.
  • Propane inventories are now in line with seasonal averages after being at a +15 Mbbl surplus at the beginning of the winter. Propane prices have been supported by tighter supplies and will have an effect on PP margins, likely putting pressure on PP prices higher.
 
Supply

North American PP operating rates in December were at 74%, much lower than Novembers’ 80.6% but still a little higher than expected. It resulted in an inventory build of over 100 million pounds and pushed days of inventory from 41 early December to 47 days entering January, the highest level seen since September of 2008. For the full year 2023, production was ahead of 2022 by 4.4%. The winter freeze of mid-January is likely to have helped force production rates lower on the US Gulf Coast, with January rates expected to be no more than 70%.

Demand

PP domestic sales in the US were down a total of 4.0% in 2023 versus the prior year. Due to higher prices buyers were uncomfortable buying any more than absolutely necessary, and if there was a choice of an alternative polymer, they took that option. For the full year Cups & Containers trailed the prior year by 22.0% and Housewares, Oriented Film, and Caps & Closures were also down. Both 2023 and 2022 were two of the worst demand years in the past decade, with consecutive contraction at approximately -4.0% and -6.0%, respectively.

 

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) supply remains relatively unstable, experiencing numerous disruptions that resulted in a 3.0 cent per pound price increase in January. The recovery of propylene supply is unlikely to show significant improvement in February adding pressure on the cost side of the equation. Enterprise’s PDH-1 was down for a few days throughout the month due to operational disruptions unrelated to the January freeze. Reduced rates at the INVISTA and Dow PDH units also led to volatile market sentiment throughout January.

Price Outlook

North American polypropylene prices settled UP 3.0 cents per pound in January in line with a similar increase in polymer grade propylene (PGP). February PP prices are also expected to move up on higher propylene price expectations. Propylene supply was already strained before Winter Storm Heather hit, and the storm further impeded the pace of recovery. Total PP cash costs are expected to increase due to PGP supply tightness through Q1 2024. Producers are already positioning price increases to cover higher costs in February.

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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