Plastic resin prices in Mexico hit two-year low in Jan. 2023 but seen finding support after U.S. Dec. weather event

Prices offered by distributors in Mexico for pellets made by the biggest U.S. Gulf Coast plants for the most traded plastic resin, polyethylene, showed in the first week of January the lowest levels in about two years, but there was support after the freezing weather in the U.S. in December and rises may come, a Mexican plastic resin market source said.

Cracker and polyethylene plant in Nanchital, Veracruz. Image courtesy of Braskem Idesa

“The polyethylene was at levels above $1,000 per tonne (...) but the week of Dec. 23 because of winter weather there was an impact in the main plants for polyethylene or for the raw material for this product,” said a market source, that did provide outright prices for several grades and made comments on Mexican demand and production, but requested that its name not be disclosed.

“In this sense the main producers were impacted,” the market source said, citing names of five companies that include some the biggest petrochemical manufacturers in the U.S., where freezing weather affected large part of the country including the petrochemical hub. The source said some manufacturers alerted their customers and distributors about weather-related issues impacting production and distribution.

December weather

Freezing weather, or snow, can impact production of materials like ethylene or propylene that are needed to be polymerized into plastic, the source said. Much of the U.S., including the U.S. Gulf Coast, endured freezing temperatures as well as snow storms in some areas in late December.

“When temperatures drop below zero natural gas has flow problems. This originates the freezing of transportation lines, even damage to equipment like bombs,” the Mexican resin market source said.

“What this climatic event caused was a force majeure of some producers and this, in turn, led many of the distributors at least in Mexico to stop its offer of products for at least the last week of the year while waiting for the January price nominations,” the source said.

“The prices I have seen this week (first week of January) are slightly below those for December,” the source said.

The linear-low-density grade of polyethylene is about $1,000 per tonne while the low density polyethylene is about $1,070 per tonne. As for the high density, the injection is $1,020 per tonne and the blow molding is $990 per tonne, the source said.

“These are the mimimum prices for at least the past two years, practically since the start of the pandemic in 2020, to today, these are the lowest prices,” the source said.

The source said that it is very probable that some distributors may have removed from the market some of the lowest priced product, waiting to learn the extent of the production impacts in December in the U.S. from the extreme winter weather event. The U.S. is from where by far most of the polyethylene, and feedstock, imported into Mexico is sourced.

Polypropylene also impacted

“For polypropylene the situation is very similar although the impact is slightly less. The polypropylene also uses as raw material a gas. It also comes from crackers directly from the oil installations,” it said. Polypropylene can be obtained from propylene, that in turn can be obtained directly through a PDH (propane dehydrogenator) from propane gas. Propylene is also a byproduct of ethylene production with naphtha used as feedstock.

“Polypropylene maintained a declining trend until December, when it had declined by 1 cent per pound,” the source said.

Polypropylene resin had traded as high as $3,000 per tonne earlier in 2022 declining to $1,800 per tonne by September.

“In Dec. (2022) the prices of polypropylene were in the order of $1,300 to $1,500 per tonne," the source said.

Mexican production commentary

In Mexico there are only two polyethylene producers, the state producer that is Pemex, “lives with many limitations. Has two production plants that are running under 50% of capacity,” the source said.

The other producer is Braskem-Idesa with Mexico´s biggest ethylene and polyethylene complex in Nanchital, Veracruz. The Brazilian-owned complex was completed in 2016.

Braskem is running at higher rates as they are receiving more ethane from Pemex. The company also imports feedstock.

"Braskem carried out a very aggressive strategy because they have to place in the market all that they are capable to produce” after the increases in ethane supplies, the source said.

This greater offer from Braskem-Idesa has contributed to the polyethylene price declines, it added. Braskem-Idea has been importing ethane feedstock from the U.S. to run the complex and has a project underway to increase import capacity.

In the case of polypropylene “LyondellBasell and the Alfa Group, (partners in) Indelpro, continue to operate very aggressively. They have made new acquisitions of integration to the composites markets  (…) to accelerate consumption of polypropylene (…) in Mexico,” the source said.

Mexican plastic demand

The plastic demand in the fourth quarter of 2022 and the outlook for the first quarter 2023 demand shows a trend that “has been somewhat on the decline,” the source said.

The period during the pandemic and immediately after was marked by consumers doing home improvement projects, like small construction projects. In addition, with the purchases of multiple products through online shopping. there was much packaging needed, the source added.

In the case of Mexico, in the construction and home improvement areas, many families bought tanks to store and manage water for residential use and other projects. But the year 2023 “is starting with weak demand” for resins, the source said.

“We think it may improve in the second quarter of 2023,” the source added.

Prices for resin in North America plunged in 2022 after the startup of new production capacity in North America. Prices had increased in 2021 amid plant maintenance and other supply issues impacting volumes of resin offered from the U.S. into Mexico.

By Renzo Pipoli