USGC Polyethylene Exports Set New Record as More Supply Looms

US polyethylene (PE) spot prices finished 2023 flat to 3cts/lb lower than a year earlier as producers increased exports to offset sluggish domestic demand. The market dynamics for 2024 are looking like more of the same.

High-density polyethylene (HDPE) blow molding grade was trading at 34cts/lb railcar FOB Houston on Dec. 28, flat to where it was assessed a year earlier, according to PetroChem Wire by OPIS, a Dow Jones company.

HDPE blow mold spot export prices moved in a relatively narrow range of 33-44cts/lb railcar FOB Houston in 2023.

Some domestic market players have a cautious demand outlook for 2024, with high interest rates and slowing global GDP growth weighing on expectations.

“People are beginning to realize that demand next year is going to be weaker, so they are working hard to lock up business,” one distributor said in late 2023.

The heavy competition for 2024 contract volume commitments was also fueled by the continued ramp-up of new North American capacity.

Although it has had its share of growing pains, Shell’s 1.5 million metric ton/year Monaca, Pa. plant is expected to return to full operation in early 2024 after the company replaced a compressor for one of the three PE units.

Customers have expressed doubts over whether they will see meaningful first-quarter volumes from the restarted PE line, which will produce high-density polyethylene grades using slurry process technology. The full effects may not be seen until later in the year.

Nova Chemicals’ new 450,000 mt/year unit at the Rokeby site near Sarnia, Ont. and Bayport Polymer’s new 625,000 mt/year unit in Pasadena, Texas, will continue to increase output as well.

PE producers were able to charge out of the gate in early 2023, raising spot prices in the Houston railcar market by 8cts/lb or more from the beginning of the year through mid-March.

They have repeated that strong start in 2024 with another assist from Mother Nature. A hard freeze event in mid-January, coupled with strong export sales, helped move the Houston railcar market up by 3-5cts/lb in January.

US and Canadian PE operations have been healthy in recent months, averaging more than 5 billion lbs/month from July 2023 through January 2024. To balance those high operating rates, producers have been selling an average of 47 to 48% of their output abroad.

Some producers have said they intend to run full out as long as their facilities in the U.S Gulf maintain a substantial cost advantage compared with their counterparts overseas.

Customer pre-buying in late 2023 could be another headwind in early 2024. With prices in decline since October, some traders and processors acquired extra volumes in November and December, betting that producers will raise prices in Q1 as they have in every year since 2020.

But the PE market usually gets a boost from seasonal demand patterns in the first quarter. By the second quarter, processors exposed to industrial and construction end markets are predicting an influx of government spending from the Biden administration’s infrastructure program.

In international markets, concerns about weakness in the Chinese economy could evaporate if that market emerges strongly from the Lunar New Year holidays in February. Crude oil prices are viewed as having limited downside potential, and any rebound will put upward cost pressure on petrochemical producers, particularly those using naphtha as a feedstock.

See: Asia Remains Key to US Polyethylene Industry’s Export Strategy

PE producers believe that the downstream plastics supply chain has low inventories after a year or more of destocking.

“That could springload demand if the economy picks up,” a PE producer said. “But we don’t know when that will happen.”

If distributors’ and processors’ forecasts are accurate, any significant recovery in PE demand likely won’t be seen until the second half of 2024, if then. But crude oil prices typically rally early in the year, and that could provide some upward price pressure for North American producers looking to rebuild margins after a bruising contract negotiation season for 2024.

Tags: Petrochemicals