Conjuring Hikes in Polyethylene industry - Can we trace it?

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By: Saravanan V -- Senior Research Analyst

30 September, 2014

?Conjuring? Hikes in Polyethylene industry ? Can we trace it?
WHITEPAPER

US polyethylene market remains highly volatile due to various reasons like unplanned plant outages, unpredictable market dynamics and unanticipated price hikes. The situation gets more complex during times when polyethylene price moves against the feedstock ethylene prices. This varying trend in PE and feedstock prices has a huge impact on buyer?s budget and eventually affects their margins.

Normally, PE price trends can be predicted based on seasonality and supply/demand balance. However, tracking the logic behind certain price hikes remains a perplexing task for resin buyers. The purpose of this whitepaper is to understand the key metrics like profit margins and gross margins in financial statements and their implication on the PE resin prices.

The paper also explains the relevance of stock prices of resin manufacturers as a leading indicator to understand the resin price. US polyethylene prices have been highly volatile and trending against feedstock ethylene prices in recent times. For instance, US ethylene prices witnessed a steep fall of 10%during the first half of 2013 due to high inventories and less demand; whereas, polyethylene prices registered a strong uptrend of 10% during the same period. Resin producers have increased their prices due to various reasons like plant outages and increase in demand during first half of H1 2O13.

Normally, July is considered as an offseason wherein resin prices are expected to remain stable to low. Nevertheless producers implemented their price hikes in July 2013 as well. The producers announced their plans of price hike during April 2013 and they postponed it for months together owing to less demand. Despite less demand, they implemented it in July- 2013 resulting in a deep cut in buyers' margins. It has been relatively tranquil to time the price trend based on seasonality and market dynamics but tracking the logic behind price hikes during offseason remains a conjuring task. Such scenarios happened in the past, present and also expected in future




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