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US PE pioneers aggressive prices globally, responding to energy slump

by Merve Madakbaşı -
  • 27/03/2020 (09:03)
Major PE markets around the world were mostly unfazed by the collapsing energy prices in the previous couple of weeks. The main reason behind this mild reaction was a severe disruption to global logistics. Plus, tight measures against the COVID-19 pandemic led to a jump in global freight rates, defying tumbling crude oil futures.

American PE had softened only 2% from Jan until this week

US PE suppliers had made a strong start to 2020 owing to their lack of stock pressure after depleting their large stocks in the fourth quarter of 2019.

American sellers applied gradual increases during the first months of this year. This was before the sentiment shifted in H2 February under the shadow of the virus outbreak that first hit China before spreading to at least more than 170 nations later on.

Moreover, crude oil futures logged their largest daily drop in 30 years on March 9 driven by Saudi Arabia’s move to launch a price war against Russia.

This dragged commodity markets largely down while also triggering relentless losses in naphtha and ethylene prices worldwide since earlier in March. Spot naphtha prices sank to their lowest levels in Asia and Europe since early 2008, when ChemOrbis started to collect data on a weekly average. Tumbling oil prices cushioned the competitive power of American and Middle East PE producers against their naphtha-based competitors.

Still, American PE producers’ reaction to the energy slump had been quite thin up until now, partially supported by disrupted logistics. In Southeast Asia and Turkey, US LLDPE and HDPE film offers were marginally down by 2% in total when compared to the beginning of the year, while LDPE almost did not record any changes.

Declines for LLDPE outpaced other grades in SEA, HDPE film took the lead in Turkey

Yet, American PE prices recorded more visible decreases in major markets including Southeast Asia, Turkey, Egypt and Africa this week, breaking below the $800/ton CIF threshold in Turkey and SEA. These offers provided a competitive edge in the abovementioned regions as they formed the low ends of the overall import markets.

As can be seen from ChemOrbis Product Snapshot below, American PE prices declined by $20-50/ton or 2-6% in Southeast Asia with the largest drops being seen for LLDPE c4 film on the week. Turkey recorded a decrease of $45-65/ton or 3-8% in the period. HDPE grades, particularly HDPE film (around 8%) witnessed more notable cuts for US cargos.

*Right click the image and open in a new tab to view the full-sized snapshot.

Attractive US PE offers weigh on Egypt, Africa

Similarly, US HDPE film and LDPE film prices weighed on the Egyptian market as they stood below $800/ton and $900/ton, respectively, both on CIF Alexandria basis. Fresh LDPE prices pointed to a 11-year low, data from ChemOrbis revealed.

Looking at North Africa, buyers in Lebanon confirmed receiving attractive American LDPE, LLDPE and HDPE film offers, while competitive US HDPE film prices were also reported in Algeria.

In South Africa, American LDPE, LLDPE and HDPE film cargos were traded with a discount of more than $100/ton to Saudi Arabian import cargos this week.

Mounting stocks in the US will influence April trend

PE players see additional price cuts from US sources likely in the upcoming days. Suppliers will be under pressure of accumulating stocks based on massive capacity additions in the country since 2017.

This is also based on the fact that demand has been weak for the last couple of months across Asia and Europe. On the top of major European countries, many nations including Malaysia and India are currently under lockdown which has hit downstream operations. Plus, activity in China is yet to revive that much despite a recovery.
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