July contracts in the US/Canada polyethylene (PE) market are largely settling down by 10¢/lb, even as export prices rose during the month, as the gap between domestic and export prices remained too wide for producers to ignore.
A few producers had attempted to hold the decline to 5¢/lb, but after extended negotiations, most producers were expected to meet competitive offers at a decline of 10¢/lb or lose sales volumes, sources said.
Combined with June's 15¢/lb decline, domestic contract prices have fallen by 25¢/lb over two months, but remained up by 15¢/lb since the beginning of the US-Iran war and up by 20¢/lb since the beginning of the year.
Spot export prices rose on average by between 5¢/lb and 10¢/lb, depending upon grade, in the second half of July, tracking increases in global PE prices caused by a run-up in crude oil.
Producers tried to argue that with export prices rising, there was no reason to lower domestic contract prices. However, buyers argued that the gap between domestic and export prices was still too wide, and was allowing imported finished goods to come into the US market and steal market share from domestic converters. One stretch film converter said their stretch film business is down by as much as 30pc from normal levels due to imported film coming into the US from Asia at much lower prices.
"Producers are wrongly trying to hold onto margins that should have been given away in July," said one buyer active in the North America market.
Most producers this month have announced a 5¢/lb increase for August, although LyondellBasell announced a 10¢/lb increase.
Market participants have said the success of any price increase proposal will depend on what happens with export prices in the coming weeks. Further increases in the export price could help to support a domestic price increase, but if prices stabilize, it will be harder to push through higher prices, buyers said.
One US producer said order books are looking strong for August and September, with several advance orders from China and other parts of Asia.
"We will have high exports in August and September," the producer said. "Asia and other regions are willing to place orders and take long lead times."
The producer said strong exports will help to support higher domestic prices later in the third quarter.
