The primary ethylene derivatives PE, PVC, MEG and styrene are unworkable on the spot market as US prices are too high to sell into regional import markets, sources said.
"There's nothing from the US that works," a polyethylene trader said.
In polyethylene, traders said they would need at most a price in the mid-60's cents/lb ($1,323/mt) in railcars for blow molding and at most 68 cents/lb FAS Houston for LLDPE to try and attract South American buyers' attention.
Producers, however, offered exports at over 70 cents/lb for both grades of PE.
"China is still the cheaper market for spot imports (to South America)," another trader said.
For MEG, traders sought spot cargoes in the low 50's cents/lb ($1,100/mt) for export but producers had nothing for sale as the market was tight from a number of industry turnarounds. The best netback for US exports would be Europe, traders said, but demand in Europe had stalled with buyers waiting for lower prices. Europe's spot import price was assessed May 13 at $1,211-1,225/mt
The US styrene price was also too high for exports with June notionally talked at 69 cents/lb ($1,521/mt) FOB. In Europe on Tuesday, styrene for June was assessed at $1,515/mt, making exports to Europe unworkable. The spot price in Asia has been even lower, with the H2 June price on Monday assessed at $1,436/mt FOB Korea.
Variable costs for styrene production in the US, based on spot ethylene and benzene prices, was estimated at 66.75 cents/lb. Producers generally seek 3 to 5 cents above variable costs to cover fixed costs and margins. That would put the notional styrene rage between 69.75 and 71.75 cents/lb for prompt material.
Finally in the PVC market, the last spot offer out of the US was at $1,300/mt FAS Houston. The offer was said to be from Formosa, but buyers had no interest in it and instead had buy ideas at $1,150-1,220/mt FAS Houston.
One reason derivatives were not moving in the spot export market was that producers are seeking to increase domestic prices. For PVC and PE, producers have increases of 5 cents/lb on the table for May. If producers begin to offer lower for export, domestic buyers will use that against producers in their negotiations as to why the increases are not justified.
The tightness in the derivative market was also a function of a tight spot ethylene market. Ethylene producers in the US have begun to switch away from using ethane to heavier feeds where they have flexibility. This yields more propylene and crude C4 from the crackers and less ethylene, which ultimatley keeps the market tight and supports higher prices. Instead of making ethylene derivatives, producers could get better returns by selling spot ethylene.
Spot ethylene posted a new 13-month high as recently as Friday, when it was assessed at 71.25 cents/lb to conclude a three-day rally that saw May delivered monomer gain 6 cents/lb on the week.
Market sources suggested the latest surge was fueled by traders short-covering and by the threat of production interruptions at Louisiana plants as a result of a rising Mississippi River.
Such fears appeared to subside this week. On Tuesday, May ethylene was talked in a range of 66-72 cents/lb MtB Wms. Despite the drop in ethylene prices, the market was still tight. A PE trader believed there was incentive for producers to sell spot ethylene rather than PE, but if several PE producers begin to sell spot ethylene, it would push the price lower and they would lose another pillar of support for their price increases.
