Polymers prices face pressure on weak demand

Contract prices in the US polyethylene (PE) and polypropylene (PP) markets are facing downward pressure on the back of pervasive weak demand that is not expected to improve significantly in the near term.

May PP contracts settled down by 8¢/lb, tracking the decline in feedstock polymer-grade propylene (PGP) prices. May PE prices eventually settled flat after extended negotiations, with buyers pressing for price relief, and producers pushing off proposed increases into the following month, but refusing to budge on lower prices for May.

Officially, multiple PE producers have announced increases of 3¢/lb for June contracts. But buyers and some producers have indicated that if demand remains as weak as it has been so far this year, it is more likely that prices will decline this month.

“Demand is kind of sluggish,” said one US PE producer. “Manufacturing and housing are both weak and that has an impact on PE demand. Durables are still on the weaker side, and non-durables are also down.”

With US ethylene spot prices at their lowest level since August 2020, and US propylene spot prices back to levels seen in December 2022, US polymers are competitive in certain export markets, which can provide a relief valve for producers wanting to clear out inventories and keep domestic prices higher. However, export demand is also waning, as global markets deal with similar issues of high inflation and reduced consumer spending with concerns about the global economy.

“Nobody is buying,” said one trader, active in both PE and PP markets. “Globally, demand is off by 30pc.”

In the US, polymers growth has stagnated across the board, even as some sectors such as durables have been hit harder than others. In a recent earnings report, Dow highlighted concerns about still elevated inflation pressuring both input costs and demand, citing particular concerns about industrials, durable goods and housing. The company pointed to consumer demand for personal care and household items as a potential bright point. However, market participants have said even the typically steady food packaging sector is facing demand loss this year.

“Our business is probably 10-15pc lower than last year on average,” said one US PE distributor. “I don’t see people knocking down doors telling me our business is going to pick up.”

As consumer spending patterns have shifted, retailers are struggling to manage inventories, which has left many US plastic converters struggling to find their own correct inventory balance.

“We have been on such a roller coaster of inventory destocking, it is difficult to make an assessment on what is the true demand growth,” said a second US PE producer.

Since the beginning of the year, the producer said demand has been more “hand-to-mouth” but that there are signs that the market could be shifting back to more typical demand behavior.

But most market participants have said the economic picture remains uncertain, with few expecting any significant pick-up in demand before the third quarter and the traditional holiday restocking period.

Author Michelle Klump, Editor