Spend Matters welcomes this guest post from Rajiv Joarder, market analyst at Mintec.
In recent years, the U.S. has been able to produce ethylene more competitively than the rest of the world due to huge investments in shale gas fracking technology. This has been advantageous, as ethylene is the leading petrochemical used to make plastics. Popular packaging materials like high-density polyethylene (HDPE) and low-density polyethylene (LDPE) all have an ethylene base.
In our last ethylene article, we wrote about some of the factors that contributed to the rise in price during Q1 and Q2. This article concentrates more on the rise of ethylene prices after the summer season. The ethylene price has shot up in the U.S., defying the seasonal norm of decline. The spring season is mostly viewed as the peak season for plastic packaging manufacturers due to the increased sales of consumer goods ahead of the summer season.
Buyers in the U.S. expected the price to fall following the peak summer season. The price movement reflected this sentiment for a while. During mid-July, however, ethylene spot prices started trending upward, rising 23% month-over-month in August, due to unexpected lower supply in the U.S. In August, prices have reached the highest level seen so far this year, driven by concerns over supply disruptions due to prolonged maintenance periods at manufacturing facilities, as well as unplanned shutdowns at other sites.
In addition, producers are expected to factor in “hurricane premiums” in coming months, as most U.S. petrochemical production occurs in the U.S. Gulf Coast, which is susceptible to hurricanes. This has caused the demand for ethylene to go up further as buyers are trying to lock themselves at better prices now.
Supplies in the U.S. market are expected to remain tight until the beginning of Q4 this year, even as some manufacturing sites come back online. Local buyers will start importing from the Middle East and Asia if the price continues to increase further, since U.S. ethylene will no longer be competitive. But experts believe that the price will fall during December, due to lower demand from the consumer industry.