We talk about the US producer’s pressure to keep polyethylene contract prices flat in October earlier in today's daily report but the exhibit below helps to show some of the potential longer-term consequences of that behavior. The desire to keep pricing high by the producers is obvious as they will continue to make outsized margins if they do and carry some of the good 3Q profitability into 4Q – it will still not be as good as 3Q as costs are up for ethylene and every polyethylene producer is integrated back to ethylene in the US. The large gap in pricing with Asia is declining, in part because Asia prices are at costs and costs as rising as crude oil prices strengthen.
The propylene chart below shows a significant disconnect between spot and contract prices – more than at any point in recent history, and if the US contract price does not fall it will likely be an indicator that either discounts have increased or that more volume is moving against a spot price marker. The pressure is also on to lower ethylene contract prices, but the propylene spread is far more extreme.