To put some perspective around the shipping container costs shown in Exhibit 1 of our daily report today, $20,000 per container equates to roughly 34 cents per pound of cargo assuming that the container is filled to maximum weight. If we also add in loading inefficiencies and assume 500 miles of road transport in the US or Europe, we can add another 5-10 cents per pound. Using ethylene costs in Asia at roughly 43 cents per pound as a basic benchmark (see our most recent weekly catalyst report), we thus estimate that it would cost around 90 cents per pound to get Asia polyethylene into the US. This does not include any working capital cost assumptions around ownership of the cargo from point of production to point of use. US spot PE prices are currently below 80 cents per pound for the more commodity grades of polyethylene, which is the market that could most easily be targeted by imports from Asia. When container rates were closer to $3000 per unit, the all-in import costs would have been roughly 30 cents per pound lower and the arbitrage would have been worth exploring. Of course, if the freight rate was only $3000 per container US polymer prices would likely be lower.
The sensitivity of the US propylene market to production outages is very clear – with the price increase WoW in response to the Enterprise outage. With naphtha now an attractive ethylene feedstock in the US, we could see more feedstock switching from those that have flexibility.
Source: Bloomberg, C-MACC Analysis, August 2021