Red Sea Shipping Threats Disrupt Global Plastics Markets — OPIS

U.S. polyethylene (PE) exports will likely get a boost in January, as recent threats to Red Sea shipping lanes have driven up freight costs for suppliers in the Mideast and Asia, resin traders said this week.

The plastic pellets used to make a vast array of consumer goods are globally traded commodities that traverse the seas in steel shipping containers, and companies that move those containers are steering clear of the Red Sea following recent attacks on vessels.

A.P. Moller-Maersk, the world's largest container shipping company, said the situation in the Red Sea and Gulf of Aden remains highly volatile, according to a Friday update on the company's website.

"All available intelligence at hand confirms that the security risk continues to be at a significantly elevated level," Maersk said. "We have therefore decided that all Maersk vessels due to transit the Red Sea/Gulf of Aden will be diverted south around the Cape of Good Hope for the foreseeable future."

The diversions have caused freight costs to skyrocket on affected routes, and trade flows of price-sensitive commodities like PE are responding.

"The Red Sea issues are creating some opportunities for U.S. product," a polyolefins trader said this week. Overall demand is relatively weak, with low growth seen in the near term, but geopolitical issues such as the rerouted shipping lanes appeared to be lending some strength to PE markets, the source said.

Market participants said that suppliers in the Mideast and Asia will have greater difficulty selling to markets such as Latin America, Europe and North Africa while the Red Sea crisis continues, with Maersk said to be asking for a $3000/container war risk surcharge.

Prices in Europe and West Coast Africa markets will go up because of the lack of access to Asian product, and North American producers will have more options to sell outside of Asia and Latin America, a U.S. trader predicted.

The trader noted that freight costs had nearly tripled on some routes, from around $2500/container to nearly $8000/container.

Resin buying activity in Latin America was picking up after the holidays, but activity was still relatively light. "People are coming back, and there is an anxiousness for all these things going on," another PE trader said.

January high density polyethylene (HDPE) blow molding grade for export was assessed 2 cents higher at 36cts/lb railcar FOB Houston on Thursday, the first uptick in many weeks for that market.

U.S. PE grades were generally being offered for January shipment at prices 1-4cts/lb higher than December, traders said, although it was still unclear how much of an increase the market would absorb.

More broadly, an extended closure of the Red Sea could reduce global shipping capacity by 20% and generate inflationary pressures for the global economy, according to a January 4 research briefing by Oxford Economics.

"We assume the disruption to shipping caused by maritime attacks on commercial vessels in the Red Sea will be relatively short-lived and the recent spike in sea freight prices will reverse," the briefing said.

If the closure persists for several months, Oxford Economics estimated that shipping costs would hold at around twice the level of mid-December and contribute 0.7 percentage points to annual CPI inflation rates by the end of 2024.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

--Reporting by David Barry, dbarry@opisnet.com ; Editing by Anna Matherne, amatherne@opisnet.com and Adam Burkin, aburkin@opisnet.com

(END) Dow Jones Newswires

January 05, 2024 12:49 ET (17:49 GMT)

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