US polyethylene price evolution and what to expect

Prices for petrochemicals in the United States have increased significantly, even beyond what fundamentals would dictate.

Over the past 12 to 18 months, prices for some petrochemicals have seen meaningful deviations from historical levels. Polyethylene (PE) and polypropylene (PP) prices in the United States are up 80 to 120 percent (based on the average of 2021 versus 2019). Meanwhile, PE and PP prices in other regions have not moved as much.

This article analyzes the North American PE market to unravel challenges in the supply chain and in local supply that have driven prices well above what fundamentals would dictate (exhibit).

Starting in the first quarter of 2021, PE prices in the United States went from $1,200 per metric ton to $2,200 in less than six months. Two key factors contributed to the discontinuity: reduced local supply and a lack of viable import options. On the first point, the February polar vortex and resulting power outages in Texas took significant PE production offline, which caused a draw on inventories and reduced exports from US producers. As a result, less supply was available for buyers. The second—and more complicated—point refers to the ongoing logistics disruption in ocean freight, which has reduced the possibility of viable import options.

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The ability to import PE was affected in two ways:

  1. The cost of transport increased. Asian producers faced high costs to transport product to the United States; to justify shipments, they need to be confident that their gross profit is at or above the potential price in Asia, plus any transport costs. Only if prices went significantly higher than this would Asian producers commit to shipping containers.
  2. The availability of containers to carry PE decreased. There was less available shipping capacity to take speculative containers of PE because of logistics challenges, such as containers being tied up at ports. As a result, it was less likely that Asian producers could secure shipments of PE, even if they wanted to.

Ultimately, PE prices fell from their highest levels to approximately the cost of transport plus the price in Asia (recently at $1,600 per metric ton), but the value is still elevated due to the high cost of transport.

Over the coming two to three years, several factors will likely contribute to downward pressure for PE prices in North America: the resolution of port congestion, which will improve the reliability of imports from abroad; new ships, which will reduce the cost of transport and increase availability; and new PE production capacity, which will increase available local supply. But further disruptions, such as rising costs in energy and petrochemical feedstock, could keep prices elevated despite these factors.

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