While we are beginning to see some easing in US polyolefin prices we note in today's daily that prices are not falling in step with monomers and so spreads are widening. Because of the very integrated nature of the polyethylene market, we see swings in where the margin is being captured based on relative tightness and today it is squarely biased towards polyethylene in the US. Despite the polymer price declines in the US we maintain a level of pricing that is well above Asia – Exhibit below, but not high enough to attract imports, given the high container rates and the long lead times on shipping. The same is not true for polypropylene, which maintains a spread versus Asia that can cover the very high current costs of transport (bottom exhibit).
Source: Bloomberg, C-MACC Analysis, November 2021
But the high US prices are likely weakening because of improved rates of production in the US and the very strong economic incentive to produce. We still believe that polyethylene could see a step down in pricing if the US surpluses cause a push to more exports. It will be interesting to see whether there is any year-end inventory based domestic demand weakness for polymers in the US and if there is, whether producers keep operating hard and cause prices to weaken to open up an export arbitrage, or whether they sell what they can against current contracts and trim production to accommodate the slower demand. If history is any guide here we would expect to see further declines in US spot polyethylene and polypropylene through the end of the year.
Source: Bloomberg, C-MACC Analysis, November 2021
