The macroeconomic environment remained negative through June, particularly in manufacturing, which continued to weigh on demand for polyethylene (PE) and polypropylene (PP). Industry participants are also largely pessimistic about the second half of the year, as many players still have larger inventories than usual.
Data from the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) showed that US manufacturing activity fell for the eighth straight month in June, slowing from May. The chemicals sector posted declines for the tenth straight month.
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Domestic PE demand fell about 10% year-to-date through May, while domestic PP demand fell 8.1% over the same period.
Polymer propylene prices are falling
PP resin prices fell 4 cents/lb in June from May after polymer propylene monomer (PGP) costs also fell in the same month. PGP prices fell due to continued weak demand for PP and other key derivatives and comfortable supply. With the forthcoming commissioning of Enterprise’s second PDH unit, supply is expected to increase further in the near future.
Year-to-date PP demand has remained declining, although May domestic sales were the highest since June 2022, which could help clear excess inventories if this trend continues in the coming months. In consumer and institutional products, sales were up year over year in May but still declined over 17% for the first five months of the year. The other big sector that saw a boost was sales to resellers, distributors and compounders, while other sectors continued to struggle.
PP inventories remained sufficient to meet demand even as stocks fell month-on-month after four consecutive months of stock increases. The average operating rate was 70% in May, staying below 80% for the tenth straight month.
Buyers are committed to reducing contract prices
At the time of writing, the PE contract negotiations for June were still ongoing. Producers are hoping to keep resin prices stable as buyers push for contract price cuts. Spot and export prices fell compared to the previous month due to weak demand and sufficient supply. Benchmark contract prices have increased by a total of 6 cents/pound over the first five months of the year.
Domestic PE demand remains difficult, although good export sales allow US PE producers to continue to maintain high operating rates. Margins for integrated US ethane-based producers remain healthy, while naphtha-based producers in Europe and Asia continue to show negative margins.
The industry’s volume-weighted average cash cost rose about half a cent in June from May levels, the lowest in two years.
New PE capacity
On the manufacturing side, Shell restarted after a shutdown to fix a cracker problem. Bayport Polymers’ new facility is in the start-up phase and could begin resin production in early July. Nova’s new facility is expected to come online later in July, rounding out the current wave of new PE capacity. The next facility to make a final investment decision is the Chevron Phillips and QatarEnergy joint venture project, which is expected to come online in 2026.
About the author
Zachary Moore has 14 years of experience researching and analyzing the petrochemical markets. His main area of expertise is commodity polymers, but he also works on olefins, aromatics and intermediate chemicals used in polyurethanes. Moore returned to the US in 2016 after 10 years working abroad in Asia and Europe and has been responsible for covering the North American polyolefins market since 2017.
ICIS, a division of RELX, is a trusted source of global commodity information for the energy, chemical and fertilizer industries. The company helps companies make strategic decisions, mitigate risk, improve productivity and seize new opportunities through a global team of more than 600 professionals. RELX is a global provider of information-based analysis and decision-making tools for professional and business clients. The group serves customers in more than 180 countries and has offices in around 40 countries. The company employs more than 33,000 people, over 40% of them in North America.
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