September contracts in the US/Canada polyethylene (PE) market largely settled higher by 5¢/lb during the week, as rising export prices helped to support higher domestic prices.
There were some reports that certain producers had invoiced only a 3¢/lb increase for the month, but the majority of producers pushed through the full 5¢/lb increase to the wider market. Some buyers are now pressing for producers to grant non-market adjustments that will take those 5¢/lb increases down to 3¢/lb, but so far, any non-market activity is believed to be not widespread.
The increases came as crude oil prices moved above $100/bl in mid-September on supply concerns out of the Middle East due to the US-Iran war. The increases in global energy prices raised feedstock prices for global PE, which allowed producers to push US export prices higher. Even as crude prices have eased from those earlier highs, US export prices have been able to maintain their increases, which helped to sustain the increase in domestic contracts.
Export prices are continuing to rise this week. Between 2-9 September, US export prices rose by 4-8¢/lb on an fas Houston basis, depending upon grade. High density polyethylene (HDPE) high molecular weight film has seen the highest increase of 8¢/lb over the period due to tightness for that particular grade, while linear low density polyethylene (LLDPE) butene has seen a lesser increase of 4¢/lb over the period due to more plentiful supply.
Some domestic buyers are convinced that they will be able to push producers to give back some of the 5¢/lb increase, arguing that fundamentals do not support the full increase, as domestic demand is not improving.
"Everyone I have talked to on my side of the industry said the 3¢/lb increase is fine, but the 5¢/lb is excessive," one US PE buyer said. "The thought is that producers will have to give back 2¢/lb to the biggest buyers or risk having a down settlement in October."
But other buyers are not convinced that producers will be willing to lower prices, given that the export market continues to support higher prices.
"I'm not seeing anyone back off of the nickel for September now," another US PE buyer said.
Traders said they see a real possibility that export prices will continue to move higher in the coming weeks. While many global buyers have backed away from the market with the higher prices this week, one trader said he expects them to return once it becomes apparent that prices will not move lower.
"People are not jumping on prices now. Everyone is chasing two-weeks ago price levels," the trader said. "But that resistance is being broken as time goes by and they see that manufacturers are very firm on pricing."
For October, US and Canadian producers have announced increases of 7¢/lb for contracts.
Buyers say they see little to support additional increases after the September increase, but other market participants said it will depend on what happens with export prices over the course of the month.
