For the Quarter Ending March 2022
The US HDPE market was bullish throughout Q1 of 2022 with periods of stagnant demand especially in the month of January. The cost push by ExxonMobil, LyondellBasell and other domestic producers came about as a reaction to the sudden surge in feedstock ethylene monomer prices. A mishap at ExxonMobil’s Baytown facility in late December led to a significant amount of Ethylene capacity going offline in the first couple of weeks of January. There was a further cost push of around USD 0.04/lb by producers in the month of February encouraged by a surge in crude oil prices, which shot up to seven-year highs by the last week of January. The contemplated cost push of USD 0.07/lb had been only partially implemented as more capacity had come online in the first quarter including a SABIC-ExxonMobil joint venture with a capacity of 1.3 million ton per annum of Polyethylene production that had improved the supply fundamentals forcing market players to rethink their raise on offers.
The HDPE market in Europe had a similar trend in the first half of Q1 as that of the US. Starting late February, with the onset of war in eastern Europe and the consequent energy crisis that plagued Europe for much of the month of March, supply had taken a hit due to cost pressure from Ethylene prices. Prices of Ethylene in Europe have increased by 32% during the period 25th February 22 to 18th March 22. The benchmark CIF ARA price of Ethylene was assessed at USD 1640/MT on the 18th of March. The supply shortage in the feedstock market is, however, expected to ease up in the second quarter and thus diffuse the cost pressure on the HDPE prices. Supply of HDPE Blow Moulding grade continues to be tight while the demand from down stream moulding market is strong. Injection Moulding prices had only seen modest raises due to a healthy demand-supply equation. The Dutch TTF futures prices are expected to end up in contango as we expect an increase in supply of LNG from the US and the middle east to Europe. This means a normal energy situation for Europe prompting producers to be conservative in their approach to price raise for the month of April.
The HDPE market in the Asia Pacific witnessed an inconsistent price trend during Q1 as demand in the East Asian region took a slump during the Chinese lunar new year holidays. Production was also cut due to surge in COVID cases as well as the Chinese government’s winter air pollution control norms leading to hike in prices since the last week of February. Spot HDPE prices fluctuated in the month of March as feedstock prices saw major fluctuations in tandem with fluctuations in the crude oil market. Indian domestic producers have been consistently raising their contract prices since the 20th of January, with an average increase of USD 138 (INR 10500) in the month of March. Indian domestic supply could be hit in the month of April due to ONGCs planned turn around at their Gujarat facility which could bring down domestic capacity of HDPE.
For the Quarter Ending December 2021
As a result of supply tightness faced during the period post deep freeze in USA, exports had been diverted form Northeast Asia to Europe and the domestic market as a conscious decision to maintain stability in the market. However, production of HDPE had recovered by the start or mid-October flooding the domestic market with a surplus. Although traders were helped by the continuously rising freight charges which weakened the arbitrage margins for imports from overseas, the slump in demand ahead of the Christmas season in North America and Europe forced most traders to sell their stocks at significant discounts. Demand from the packaging Industry gave the markets some breathing room but the return of strict lock downs and quarantine protocols in China and Northeast Asia had led to ExxonMobil, Dow, LyondellBasell etc., to revise their prices downward drastically to the tail end of December FY21 owing to a lack of demand from overseas.
The outlook for Q1 of FY22 remains highly unpredictable due to the pandemic disrupting logistic networks once again. Although the effect on polymers market may not be as severe as during the Q1 of 2020 period but demand fundamentals could certainly be weakened as result of the ongoing crisis. Demand is expected to pick up during the early to mid-February when markets, especially those in Asia become more pandemic ready.
The Asian HDPE market witnessed an opposite of the trend from North America as prices of HDPE on an average increased in Q4 from the Q3 levels as prices of Injection grade HDPE in China increased by almost 10% and the increase was 11.2% for the Blow Molding grade. Supply side tightness persisted during Q4 as freight costs from Europe, U.S.A and the Middle East to East Asia during the October to November period were at record levels. China was also crippled by an energy crisis since October owing to coal shortage which forced the government to cause an intervention and ration the coal supplies to distribution companies. However, this intervention could not lead to any long-term gains as the month of December saw the country hit by the new wave of pandemic disrupting domestic production as well as imports from overseas due to clogging at the container terminals.
India too saw a significant rise in the average prices of HDPE compared to the Q3 levels. A significant increase of 15% was observed during Q4 assessments for the HDPE Blow Molding grade and 12.3% for the Injection grade. India too was hit by shortages in coal reserve during the same period pushing up the energy costs. Although manufacturers had started revising prices downward during the month of December, the price cut did not affect the overall sentiment for Q4 as Demand had outmatched supply over the entire quarter.
The Outlook for Q1 of FY22 remains mixed with the new wave of pandemic likely to affect production rates across Asia. As a result, prices could see an uptrend by the mid-January to early February period.
European HDPE market too like the US market saw a marginal depreciation in the prices of HDPE during Q4 of FY21 compared to the Q3 levels. The average prices of HDPE Injection, Blow molding and Film grades were on an average 3% lower over Q4 compared to Q3 assessed on an FD Hamburg basis. Demand declined since the closing week of November FY21 as the holiday season saw most companies including INEOS and LyondellBasell revise their prices downward. Natural gas market’s anomalous trend this time around had a direct impact on the production levels as price was on a downtrend for majority of Q4 and only started reversing by the second week of December. This had led to the exporting countries like the Netherlands and Belgium continue with the same production levels. The new wave of pandemic however impacted their export base as East Asia went back to lock down mode during the closing weeks of Q4 further reducing the prices of HDPE.
The Outlook for Q1 of FY22 remains uncertain as the new wave of pandemic disrupts market signals and global logistic networks making it difficult for market players to assess actual demand. A lot, however, depends on the severity of the winter in Europe and US as production levels come down during the peak winter season owing to increased energy demand and in turn the energy costs.
The overall domestic market outlook of HDPE strengthened in the North American region during the third quarter of 2021. The upward trajectory in spot export prices seemed to have continued in the 3rd quarter with supply side constraints unresolved. There was a sudden surge in the HDPE contracts for the last week of August as Hurricane Ida caused force majeures among the Texas manufacturers. Spot prices of HDPE Injection molding and Blow molding Grade stood at 1795 USD/MT FOB Texas and 1890 USD/ MT FOB Texas respectively during the month of September.
The market of HDPE witnessed an upward trend during the third quarter of 2021 in the Asia Pacific region. A sharp rebound in the consumer demand amid the active pick-up in market activities caused a spike in the prices of HDPE in the Asian markets. Besides, the regional market faced a scarcity of supplies as several countries seemed to grapple with the outbreak of the Delta variant early in Q3 which led to the slowdown in trading activities across the region. In India, Ex-Silvassa (pipe grade) price of HDPE escalated from USD 1363/MT to USD 1401/MT during the quarter. In addition, high freight costs have also put forth pressure upon the manufacturers and traders to implement a hike in the prices to safeguard their margins in Q3 2021.
The European market of HDPE experienced mixed sentiments in Q3 2021. The pricing trend observed a downward trajectory as FD Hamburg price declined from USD 1741/MT to USD 1637/MT during the third quarter. The demand outlook remained stable throughout the quarter due to the consistent demand from the downstream automotive and construction industry. Factors like disrupted supply, high freight costs, and low availability of containers resulted in the hiked prices of HDPE across the region.