The theme of product shortages continues, with prices in China reflecting the global tightness and signaling that the import dependence is still there for some products, despite the recent and continuing capacity additions. The base chemical price rises in the US are contributing to the rising US producer price index for February and given that we have seen further price rises since February, March could show another jump.
Chemical pricing corrections tend to happen quickly when they reach a point of infection, but it would be a very brave buyer of polyethylene or polypropylene in the US who took the view that they should hold off purchases today in the hope of lower prices tomorrow. A fall in oil prices might trigger a change in sentiment or a more dramatic increase in COVID than we are seeing right now, but absent either of these, the supply chains are tight – customer inventories are low and consumer demand is high, so the rally can continue. The chart below shows the extreme in ethylene pricing today. The last time ethylene surpassed 60 cents per pound was in 2012 when crude oil and natural gas prices were much higher and current spot pricing generates some of the highest ethylene production margins we have seen.
Source: Bloomberg, C-MACC, March 2021