Is there any light at the end of the tunnel for US Polyethylene and Polypropylene?

US Polypropylene (PP) and Polyethylene (PE) prices have remained at record levels all throughout the year beginning in Q4 2020. Monthly average prices of Polypropylene copolymer from January 2021 till November were assessed at USD 2700 per MT while Polyethylene (LDPE) prices have averaged for the same time period at USD 1775 per MT on FOB basis. In 2019, monthly average price of PP copolymer was measured at USD 1270 per MT FOB USGC. This staggering variance in yearly prices has epitomized the lopsided market dynamics for PP in 2021. Manufacturers and suppliers have reaped better margins in the wake of recovering global demand and tight supply caused by production disruption in 2021 across North American region.

As the year moves towards its conclusion, the important question that beckons the market participants is, whether these record high numbers are the new “normal”? or are they portraying temporary trends caused by global supply chain disruptions and will be ironed out in the coming months?

What has happened till now?

US C2 and C3 polymer market struggled with supply tightness through all quarters. PE and PP inventory levels were at their lowest coming into 2021 resulted from production decline in 2020 and the aftermath of severe hurricanes in Q3 and Q4 2020 further crippling the production rates and in turn rattled inventory levels. In Q1 2021, Arctic freeze halted the production across US severely damaging the Gulf Coast states (where major production sites are located). This sent the prices of polymers sky-high and since then there is no coming back for polymer prices, there are periods of stagnation in price rise but there was little reprieve for the buyers in 2021.

Another key factor at play has been the turmoil in shipping industry which made it impossible for Asian oversupply of PE and PP to find its way across Atlantic to US. Middle East has been a key exporter of PE and PP, and due to resolutely high freight and shipping costs, manufacturers in Asia were unable to export their material to at competitive prices. These shipping and freight charges greatly caused by misplacement of containers instead of any global container shortage. This in turn has pressurized the global supply chain and inflated container charges and shipping cost.

Current Scenario

Stability has been observed in shipping industry in last few weeks after 3 consecutive quarters of upheaval, this has been credited to successful vaccination programs across the world which has resulted in ease in restrictions globally. However, things may turn to worse as there has been news of occurrence of another variant in several regions worldwide. The speculation regarding new variant will also test global supply chains as countries will likely to become more cautious and restrictive disrupting smooth functions across critically important ports in key petrochemical producing countries. And consequently, freight charges have again skyrocketed in last 2 weeks of November.

What lies ahead?

 Emergence of covid variant, Omicron, paints a gloomy picture of the current market dynamics while also giving birth to global uncertainty for both supply and demand prospects in the short term. Buyers may have to cope with strong price sentiment in the market at least till the 2^nd half of Q1 2022. After that a gradual change is likely where global supply chains are expected to be completely rebuilt at some stage in the first quarter. Subsequently, it is expected that PP and PE trade will come to some level of equalization across regions globally consolidating on supply chain stability allowing oversupply in Asia to balance supply fundamentals worldwide.

In conclusion, the current market sentiments are exaggerations caused by disbalanced trade dynamics where the west has suffered from supply tightness and outrageous demand while Asia has observed sustained periods of oversupply.