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The macroeconomic environment remained bearish through June, especially for manufacturing, which continued to weigh on demand for both polyethylene (PE) and polypropylene (PP). Industry participants are feeling bearish for the second half of the year for the most part, as well, with many players still holding larger than usual inventory levels.

Purchasing Managers Index (PMI) data from the Institute for Supply Management (ISM) showed that US manufacturing activity declined for an eighth consecutive month in June as well as slowing from May. The chemical sector registered its 10th consecutive month of declines.

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Domestic PE demand was down around 10% year to date through May, while domestic PP demand fell 8.1% over the same time period.

Polymer grade propylene prices drop

PP resin prices settled lower by 4 cents/lb in June from May, following an equivalent decline in same-month polymer grade propylene (PGP) monomer costs. PGP prices fell on persistently slow demand for PP and other major derivatives as well as comfortable supplies. Supply levels are set to lengthen further over the near term with the impending start-up of Enterprise’s second PDH unit.

PP demand remained down year to date, although May domestic sales were their highest since June 2022, which could help pare down excess inventories if these trends continue into the coming months. Consumer and Institutional Products saw a year-on-year increase in sales in May but were still down over 17% through the first five months of the year. The other major sector seeing a rally was sales to resellers, distributors, and compounders while other sectors continued to struggle.

PP supplies remained sufficient to meet demand, even with inventories declining month on month after four consecutive months of increasing inventory levels. Average operating rates stood at 70% in May, marking the 10th consecutive month that operating rates remained below 80%.

Buyers lobby for contract price relief

At the time of writing, June PE contract negotiations had not concluded. Producers are hoping to keep resin prices flat while buyers are pushing for a contract price decrease. Spot and export prices were down month on month on weak demand and sufficient supplies. Benchmark contract prices have risen by a cumulative amount of 6 cents/lb through the first five months of the year.

Domestic PE demand continues to struggle, although healthy export sales are allowing US PE producers to continue to maintain high operating rates. Margins for integrated ethane-based US producers remain healthy, while naphtha-based producers in Europe and Asia continue to run at negative margins.

Volume-weighted average industry cash costs rose about half a cent in June compared with the May level, which was the lowest figure recorded in two years.

New PE capacity

On the production front, Shell resumed operations after a shutdown to repair a cracker issue. Bayport Polymers’ new plant is in the commissioning phase and could begin resin production by early July. Nova’s new plant is anticipated to start later in July, which will round out the current wave of new PE capacities. The next plant to have reached a final investment decision is Chevron Phillips and QatarEnergy’s joint venture project, which is expected to come online in 2026.

About the author

Zachary Moore has 14 years of experience researching and analyzing the petrochemical markets. His primary area of expertise is in commodity polymers, but he has also covered olefins, aromatics, and intermediate chemicals used in polyurethanes. Moore returned to the United States in 2016 after working overseas for 10 years in Asia and Europe and has been responsible for covering the North American polyolefins market since 2017.

ICIS, a division of RELX, is a trusted source of global commodity intelligence for the energy, chemical, and fertilizer industries. The firm helps businesses make strategic decisions, mitigate risk, improve productivity, and capitalize on new opportunities through a global team of more than 600 experts. RELX is a global provider of information-based analytics and decision tools for professional and business customers. The group serves customers in more than 180 countries and has offices in about 40 countries. It employs more than 33,000 people, over 40% of whom are based in North America.