While we continue to see valiant efforts from the polyethylene producers to increase prices further in June, this is what we used to refer to as a “cow in front of a train” strategy. In that throwing a cow in front of a train was not going to stop it, but it might slow it down a bit! Barring weather, it is inevitable that US polyethylene prices shown in the chart below will start to give back some of their premium pricing over the coming months. One factor among several others pointed out on today's Daily Report is that Ethylene is much weaker and the international markets are materially out of line, and if freight rates have peaked, the arbitrage will undermine prices in the US. Producers will do their best to hang on to the high margins for as long as they can, and a few more cows may be sacrificed, but the weather is their only hope.
Source: Bloomberg, ICIS, C-MACC Analysis, June 2021 We believe that the May contract increase will be the last for polyethylene and the ethylene trends is certainly supportive of running polymer plants at maximum rates in the US, which inevitably means looking for incremental exports. The industry should have a stunning 2Q from a profitability perspective, and while we will likely see lower margins in 3Q it will still likely rank among one of the best.
