We are seeing some monomer price weakness in the US, despite the rising costs. For ethylene, this is likely because of increased supplies (new capacity and turnarounds ending) and all capacity to consume running at full rates, including the export terminals. There is plenty of margin in exporting ethylene today and US prices are not falling because they need to find another buyer internationally. We could see some opportunistic buying for inventory at these prices, especially if you believe that the conflict in Ukraine is not ending soon and also if you are concerned about more extreme weather as we move through the summer in the south of the US.
The upwards pressure on crude oil prices will likely drive propane prices much higher in the near term and this will significantly impact propane dehydrogenation (PDH) costs in the US and put further upward pressure on propylene prices and prices for propylene derivatives. Note in the exhibit below that US polymer prices are turning slightly more positive relative to Asia again. While some of this will be cost-based issues in the US, especially for polypropylene, higher freight rates (again) continue to make it difficult for producers in Asia to maintain attractive operating rates and make it harder to push prices higher to reflect what are now rapidly escalating costs. The oil moves today may result in more capacity closures in Asia, which should lead to better pricing, but as we noted in our Weekly on Monday (and likely more extreme today) outside of US ethane-based ethylene producers, no one is making money producing ethylene today. Prices are going higher.
The surge in European benzene pricing (first chart below) is likely a function of lower production as refiners adjust to account for the new COVID restrictions in the region, lowering short-term demand for jet fuel and gasoline. Prices in Europe are high enough today to justify shipments from the US but are more likely to result in shipments that were bound for the US heading to Europe instead. By contrast, US refining rates are edging higher, as the holiday season has created more demand for air travel and gasoline, despite the rise in COVID.
US rail data for chemicals remain at the 5-year highs and have been there for almost 2 months. This is working its way into the supply chain and we are seeing weakness in US polymer prices across the board, except for PVC. US spot polymer prices are in a bit of a “no man's land” right now as they would need to drop significantly to find incremental demand offshore, given US premiums to the rest of the world. We believe that most of the volume leaving the US is doing so within company-specific businesses – ExxonMobil supplying ExxonMobil customers, Dow supplying Dow customers, etc, and consequently, these shipments do not show up in the spot market.
As we hinted in yesterday's report, the wheels are wobbling in the US market, especially for polyolefins and this comes at a time when Asia prices are finding some strength because of production and cost issues – it shows how quickly market dynamics can change in this industry and the closing of the gap between Asia and US propylene prices in the first exhibit below is perhaps the most dramatic example. We see a real opportunity for the wheels to stop wobbling and completely fall of the western wagons in the near term, and as the second exhibit below shows propylene continues lower, and with further to fall to hit PDH economics.