Polyethylene price increase is in doubt

Sliding ethylene prices, weak demand are factors

By Tom Stundza -- Purchasing, 2/13/2008 8:21:00 AM

Ethylene prices have continued to slip this month, putting into question the attempt by downstream producers to increase polyethylene prices by 6¢-11¢ this quarter.

Spot ethylene prices have slipped to an average 48¢ this month from 50¢ in January (and a cyclical peak of 51¢ in the fourth quarter) because of sliding demand. At the same time, only a smattering of buyers is reporting a 3¢ increase in polyethylene prices this month. Reason: Buyers are purchasing the chemical feedstock and the downstream polymer on an as-needed basis and maintaining low inventories.

ICISpricing.com reports that ethylene producers had nominated increases of 4¢-7¢/lb for January, but softening demand and a drop in upstream energy costs kept the contract at a standstill with the December level. U.S. producers have nominated an ethylene price increase of 4¢/lb for February. “However, buyers expect contract prices to remain steady or start to drop based on current market conditions,” notes the subscription-only market news service.

Buyers also have described demand as so-so for downstream polyethylene plastics, paints and household detergents, and propylene, another building block for plastics and fibers. “The outlook in the U.S. is going to be problematic,'' as automotive and housing markets slow economic growth to about 1.5% in 2008, Dow Chemical’s CEO, Andrew Liveris, agreesin the interview with Bloomberg News Service. “The first half is going to be really soft,” adds the head of the world's biggest producer of ethylene, the most-used building-block chemical.

Large-volume buyers say they won’t accept any increases until the manufacturing economy improves. Still, some polyethylene producers insist they will continue to push for price hikes. Producers initially targeted a 6¢/lb increase in January, than changed that to 3¢ in January (which didn’t stick) and 3¢ in February (which is in doubt), to be followed by another 5¢ increase in March.

Markets sources tell ICIS.com that the PE increase has been undermined by moderating energy prices, a decline in ethylene monomer spot pricing and a sell off of discounted December inventory by the secondary market in January.

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