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Crude at multi-year highs contributes to a perfect storm in polymers

by Esra Ersöz -
  • 08/10/2021 (10:03)
A perfect storm of factors - including a long-lasting supply tightness and demand growth as well as the prevailing freight turmoil - have already caused a bullish atmosphere in polymer markets largely since the second half of 2020, disregarding some small intervals of downward corrections in different parts of the world.

The recent energy crisis appears to have added to the list of bullish factors in polymer markets as it is deepening across the globe. China and India are facing a critical coal shortage while Europe is grappling with fuel and natural gas shortages.

As a part of this crisis, Brent futures hit their highest of three years on Tuesday, settling above $83/bbl and WTI futures on NYMEX rose more considerably to see their 7-year highs, nearing $80/bbl. Although they faced downward corrections in the following days of the week, they are still standing close to their multi-year highs.

"Some daily pullbacks will naturally occur this week but this does not change the underlying bullish case for oil," a market analyst said.

Low stocks are now cited as the culprit for the recent spike in oil prices. According to Bloomberg, the crude market has tightened significantly following the economic recovery from the pandemic and supply disruptions in the U.S. Gulf of Mexico due to storms. Surging natural gas prices have also raised the prospect of increased demand for oil products for power generation and are boosting inflationary pressures on the global economy. Goldman estimates an extra 650,000 barrels a day of oil demand later this year from power switching.

What is more, the decision of the OPEC and allies to stick to the plan to increase output gradually and not boost it further underpinned this oil rally earlier in the week.

Crude oil - Prices - NYMEX - Brent

Crude back on the scene to reinforce the bullish trend in polymers

In the downstream chain, meanwhile, a bullish sentiment has already been permeating the marketplace as supply issues have not been finding relief for many polymers. Now several polymer products and regions that are more sensitive to the movements of crude oil - as in styrenics or in China - have another leg to stand on for renewed price increases.

It is no longer a surprise for PVC players to see record-high prices each week, as it seems to be the new normal across the board.

Since supply problems have not been as critical, the situation in PP and PE markets is not as dramatic as in PVC. After hitting all time highs in the first half of the year, polyolefin markets saw some corrections mostly in Q3. Recently, they have turned back up again in the heat of the deepening energy crisis.

Styrenics markets have also had a less bullish scene with respect to other polymers. The second half of the year, in particular, has been choppy for many styrenics. However, they are still standing at their multi-year highs.
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