We discuss recent historic highs reached in China to US container freight rates in our daily research today, and (absent Ida) we note that freight charges remain a major component in favor of US polymer price support. With current container rates so high, it is difficult for US consumers to get access to cheaper material from Asia, even if they are willing to try the untested grades in their equipment. Absent the freight extremes today, we would be much more definitive in declaring that the US's record spot/contract polyethylene price difference was unsustainable and would be corrected quickly. While there appear to be some surpluses of US polyethylene today, such that producers are testing the incremental export market, the same producers can hide behind the freight barrier as they make arguments to support domestic pricing. Some US buyers may be getting pricing relief because they have price mechanisms that partly reflect the spot price. It is also possible that large buyer discounts have risen through this period of very high pricing (this has happened before).
Source: Bloomberg, C-MACC Analysis, August 2021
As also mentioned in today's daily, it is not just energy costs, high demand, and problems with international shipping that are helping to support pricing. Domestic distribution is also a constraint, with wait times at ports up – once you have paid for the container, rail delays have become usual in the US, and we find almost daily stories about truck driver shortages globally and the cost inflation associated with finding new drivers or persuading the ones you have to work more overtime. This development can unlikely remain in motion for a long time. In the meantime, we wait to see if even more tension in the system will develop from any lasting production impacts from Hurricane Ida. There are numerous ammonia/urea and PVC/vinyl production units on the river between Baton Rouge and New Orleans; thus, a disruption or two will not be a surprise.
