We note the polyethylene price nominations in the US, timed by some to coincide with earnings releases this week and next, and would remind clients that there is always price momentum in commodities, one way or another. In our view, the price increase moves aim to maintain directional momentum (upwards) while giving the polymer producers some cover should natural gas prices spike further. US ethane prices are now tracking natural gas more closely and have moved up meaningfully over the last few weeks, and US ethane-based ethylene margins have fallen around 80% since the start of the year, with at least half of that coming from cost increases. All polyethylene producers are integrated back to ethylene, and the price nominations will be attempts to recoup some of the cost increases. This is against a backdrop of still very strong polyethylene margins in the US, which although way off their 2021 highs remain much higher than in 2019 and 2020 and the longer-term average. This is covered in our Weekly Catalyst report each Monday. Ethylene margins are summarized in exhibit below and the chart shows the impact of higher costs in the US and falling spot ethylene prices as the US now has more surplus ethylene capacity and is looking for export homes for ethylene and easy to ship derivatives. As we have noted before, the jump in margins in Europe and Asia is because of extreme volatility in naphtha markets over the last couple of weeks. We would expect margins to be lower next week based on naphtha moves this week.
Source: Bloomberg, C-MACC Analysis, April 2022
The MDI market in the US continues to show strength, but this again may be one of the lagging indicators that we talked about on Sunday. Demand looks stronger at the basic chemical producer than it does at the end consumer today and chain inventories are likely building. Suppose durable and housing demand falls because of inflation in consumer staples as well as higher borrowing costs. In that case, this will work its way back into polyurethane demand in our view and could lead to some demand and margin disappointments as the year progresses.
Source: Bloomberg, C-MACC Analysis, April 2022