For the Quarter Ending March 2022
North America
Linear Low Density Polyethylene market in the first quarter of 2022 witnessed a supply shock in the feedstock ethylene market as the region’s largest refinery at ExxonMobil’s Baytown facility in Texas caught fire in the last week of December 2021. Demand witnessed a sharp rise by the second week of February and the planned cost push of USD 0.07/lb by major domestic producers including ExxonMobil, Lyondell Basel and Dow Chemicals. Other producers were hesitant to hike their offers due to lower than expected demand as well as an uncertain supply chain scenario vis-à-vis the overseas market. The month of March saw prices stabilize after witnessing a sharp surge of USD 90/MT in the last week of February. The stabilization was mostly due to a softening in the ethylene monomer market driven by lowered Natural Gas Liquid prices (Propane and Ethane) and injection of new capacities, especially with the commencement of production at the SABIC-Exxon JV with a combined capacity of producing 1.3mn tons of LLDPE and m-LLDPE per year that diluted the supply crunch in the month of March.
Asia Pacific
Chinese LLDPE market saw prices surge in the third week of January on the back of supply shortages due to the Chinese government’s strict covid 19 protocols that caused a significant amount of production to go offline as well as delayed container transit in to and out of critical container terminals such as Ningbo and Shanghai. Imports from the Korean Peninsula, India and the US found it hard to make their way into the domestic market. After a temporary slump in demand in the first week of February at the onset of Lunar new year holidays, demand finally grew stronger by the last week of February as the start of war in eastern Europe prompted buyers, mostly downstream moulders, and extruders to stock up their inventories in expectation of higher feedstock monomer prices.
India and the Middle East saw comparable price trends during the quarter ending March. Manufacturers including SABIC, RIL and ONGC Petro additions ltd, have revised their prices upwards in the second half of January and the contracts were further pushed up in the month of February by RIL by INR 9500/MT. The month of March however saw another INR 10500/MT contract push by Indian manufacturers in response to the sudden surge in Crude oil prices in the first week of march to reach their highest value since June of 2008.
Europe
European LLDPE production during the quarter ending March had come under extraordinary pressure from disruption of natural gas supplies during the first half of the quarter. European natural gas demand rises sharply during the peak winter season, add to that, the lowered flow rates of Natural gas through the Nord Stream and Yamal pipelines, the two most important feed streams to North-West Europe, operational costs for the European manufacturing community have already been unfeasible by the first half of Q1 of 2022. The onset of war between Russia and Ukraine had further deteriorated the crisis, especially for the upstream ethylene producers as most naphtha crackers were rendered inoperable due to tighter naphtha crack spreads translating into negative Ethylene-Naphtha spreads. Benchmark Ethylene spot prices assessed on an FD North-West Europe basis have seen a whopping 32% rise between 25th of February and 17th of March. Standard LLDPE film prices for northwest Europe for Q1 of 2022 averaged around Euro 2000/MT.
For the Quarter Ending December 2021
North America
LLDPE market in the USA experienced a similar trend to that of HDPE and LDPE, where prices were lower on an average in Q4 of FY22 compared to Q3 of FY22. Production levels were lower compared to Q4 of FY20 as manufacturers struggled to find demand from export markets. Although the Ethylene to LLDPE spread narrowed by the end of November, suppliers and traders struggled to gain any leverage due to lack of demand in the domestic market and disruption in logistical networks to major exporting regions like Northeast Asia. The prices of Butene based LLDPE had seen a reduction of 55USD/MT during the second week of December FY21 assessed on an FOB Houston basis.
The first quarter of FY22 could see a further downward revision in prices as per ChemAnalyst’s assessment as export markets are ailing from supply chain disruptions and new capacities being added to the US production of LLDPE such as the SABIC-ExxonMobil Joint Venture near Portland, Texas which started operations from the tail end of December. The JV adds a combined LLDPE and m LLDPE capacity of 1.3mn MT which could cause a surplus market for Q1 lowering the prices further down.
Asia
Asian LLDPE market during Q4 witnessed a supply tightness due to high freight costs and the shortage of coal supplies which led to an energy crisis in China. The prices of LLDPE in Q4 were on an average 5.2% higher in Q4 of FY21 for the high flow grade compared to the Q3 prices. Although the energy crisis eased out by the last week of November FY21, thanks to a government intervention, most polyethylene and polypropylene manufacturing in China is still dependent on coal as energy source and the supplies of coal had been diverted towards power generation rendering production cuts at most PE and PP plants.
India too faced a similar situation with coal shortage from the tail end of October and continuing till the first week of December FY21. The prices of LLDPE extrusion coating grade had seen an increase of 10% from the Q3 prices assessed on an Ex-Location (Mumbai) basis. Although prices were revised downwards by RIL, Haldia petrochemicals and Opal in the month of December ahead of the holiday season, prices are expected to get an upward thrust during the second half of January as a result of pandemic related production disruption combined with a general rise in demand.
Europe
Demand for LLDPE from the domestic market saw a slight decrease from the Q3 levels. Production levels in Q4 of FY21 were around 80-90% of the Q4 of FY20 levels. The price of Butene based LLDPE film on an average saw marginal decline of 2.2% from the Q3 price when assessed on an FD Hamburg basis. Demand -Supply fundamentals deteriorated to the end of December as major exporters in Europe such as Belgium and Netherlands struggled from the drop in demand from the East Asian markets during December as the new wave of pandemic led to a disruption of logistic networks. Ethylene to LLDPE spread improved by the closing weeks of December as manufacturers found it hard to improve margins.
The outlook for Q1 of FY22 remains bullish as European energy demand increase during the peak winter season resulting in an increase in prices of Natural Gas which is also an upstream for the Ethane steam crackers. The impact of the pandemic may offset the increase in demand in the month of January FY22.
The market outlook of LLDPE witnessed an upward trajectory in the North American region during the third quarter of 2021. The prices of US film grade LLDPE followed the trend of other polyethylene grades throughout the quarter as feedstock ethylene prices have been the key driver in determining the prices of all the variants of the Polyethylene family. A steep plunge in the prices of Ethylene was offset by traders seeking higher margins. The effect of Hurricane Ida itself seemed to have minimal effect on the price trend although production got constrained as manufacturers on the Gulf coast were forced to shut down in the last week of August. The price of film grade LLDPE stood around 1650 USD/MT FOB Texas and 1680 USD/MT FOB Nevada in August.
The domestic market price of LLDPE witnessed a steep rise in the Asia Pacific region in Q3 2021. LLDPE prices in India demonstrated prominent gains followed by the restricted availability of the product and bullish offers from several overseas suppliers. In India, the price of high flow grade of LLDPE escalated from USD 1411/MT to USD 1533/MT during the quarter. Prolonged shortage of containers and high freight costs pressurised suppliers to raise their spot offers once again for Southeast Asia. As high year-end premiums were being laid on the Middle-East origin import cargoes, several traders were reported carrying out a positive revision in their prices under its influence throughout the quarter.
The overall LLDPE market experienced mixed sentiments in the European region during the third quarter. The prices of LLDPE witnessed a downtrend and last stood at USD 1720 per MT FD Hamburg in September. Downstream demand remained firm across all derivatives through Q3. Some players anticipated a squeeze on derivative margins with regards to their pricing. Prices of several polymers rose in this quarter as well, due to the shortage of feedstocks caused by prolonged unplanned turnarounds across Europe and the gulf of the USA.
