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Freight and Feedstock Costs Affect Global PE Trade, Prices & Competition
08/05/2024


North American Polyethylene exports face stiffer competition from Asian exports as highly elevated freight rates from Asia ease while US ocean freight costs edge higher, shifting an ever-changing trade flow market dynamics.

While North American Polyethylene producers enjoy a substantial long term feedstock cost advantage, US Ethylene costs have also been rising, putting a squeeze on incremental margins, particularly for non-integrated PE producers.

Spot US Ethylene prices traded this week at $.285/lb in Texas, they began the year at $.20/lb and stood at just $.16.lb July of last year. Spot ethylene prices in Louisiana are even steeper, trading up to $.34/lb this week.

US Polyethylene export volumes have risen substantially over the past several years amid US capacity additions, which were largely developed for overseas sales and supported by cost advantaged feedstocks. Still, consistent export growth can sometimes be a challenge due to regional supply / demand fundamentals, seasonal market cycles, competitive international supply and volatile logistics costs.

A decade ago, US PE exports averaged 639 million pounds per month, representing 19.5% of US producers' total Polyethylene sales, while in the past 12 months, through June 2024, US producers have sold an average of 2.4 billion pounds of Polyethylene per month representing 45.7% of their total Polyethylene sales, according to data compiled by the American Chemistry Council (ACC).

Freight costs are important to international resin trade flows around the world, as they affect price parity between regions. Ocean freight rates began to surge around the beginning of 2024 as a result of Houthi rebel attacks which caused ships to divert from traveling through the Red Sea. This drove increases in ship expenses and transit times which in turn has reduced total available capacity while displacing containers, contributing to further escalations.

Shipping rates from Asia to the Americas have risen from a range of $1,500-2,500 around the start of 2024 up to a more recent high of $7,300-9,600 for non-contract shipments. However, during July, we saw spot freight rates come off as much as $2000 per container for some lanes. It's too early to know if the relief is temporary or if the overall trend has reversed.

As freight rates increase from one particular region, in this case Asia to the Americas, it causes a higher delivered price and extended delivery times. This made resin from the US more attractive to Latin American buyers, even as US Polyethylene export prices rose.

US Polyethylene exports are up year-on-year supported by cheaper feedstock prices relative to other regions, reduced energy driven operating costs and ultra competitive freight rates, allowing for higher net back sales prices, which led to margin improvement and export price competitiveness for US based producers throughout 2024. ACC data showed June polyethylene exports of 46.78% and YTD average of 46.34% slightly above the aforementioned annualized 45.7%; having risen steadily from 1Q 2023 lows averaging 41.73%.

This alternative outlet for North American PE supply tightened domestic availability and helped US producers implement $.06-.08/lb of price increases on domestic contracts so far in 2024. All this happened even as US producers increased operating rates 5% while capacity rose too.

It will be interesting to see how US producers react in order to maintain their growing international market share and optimal sales vs margin amid renewed competition. Perhaps they will lower export prices and/or potentially throttle back reactor rates to help avoid over burdensome inventory growth, only time will tell.



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