TPE resin pricing, Feb. 21-25; PE mixed; PP’s slide stops; Mid-East turmoil roils resin markets

Market overview: Spot resin markets remained busy into month-end, as supplies began to dry up and prices finished the week mostly higher. Spot-trading platform, The Plastics Exchange (TPE) noted that spot monomers also rose, influenced by soaring crude oil prices brought on by Mid-East unrest. Processors have worked to avoid price increases in February, with PP finishing flat, but PE producers are still pushing for a $0.03/lb increase. Regardless of February's outcome, TPE believes PE producers will still go after an increase in March, while PP contracts see some sort of a decrease. Spot export markets were a little more active, with better demand seen from Latin America and Europe.

Energy markets: Prices rallied in highly volatile trading, with April crude oil futures reaching $103/bbl, before settling back down to $97.88/bbl. For the week, the price was still up $8.17/bbl. April natural gas futures recovered some recent losses, rising $0.099/mmBtu to close at $4.005/mmBtu on Friday. The crude oil : natural gas price ratio shot to an all-time record, expanding out to 24.4:1. Since about 70% of North American ethylene is derived from natural gas, integrated PE producers have a huge cost advantage compared to most of their international counterparts that derive their ethylene from crude oil. TPE notes that the relationship is even more pronounced in Europe, where Brent North Sea Crude settled the week at $112.14/bbl.

Ethylene spot prices firmed, although technically they were lower than the final trade of the previous week. The market had been offered just below $0.50/lb on the previous Friday and has since traded several times in the lower $0.50s/lb. Spot ethylene volumes were considerably lighter than the "fervent" pace of trade during the rest of February, according to TPE CEO Michael Greenberg. Last week's final transaction was recorded at $0.52/lb, which was up about a nickel since the beginning of the month. The market appears to be strong heading into March amid anticipated supply constraints. Ethylene delivered in the latter part of 2011 is currently priced in the mid $0.40s/lb.

Polyethylene (PE) spot prices were mixed, as the market started the week under pressure, but then recovered and was steady to higher by Friday. PE producers are holding firm in their intent to implement their revised effort to increase February contracts by $0.03/lb, although it is not a done deal. Regardless, Greenberg noted that PE margins took a hit during the month as spot monomer costs ran-up about $0.05/lb. Spot PE availability diminished as last week wore on, while buyers were still seeking material at prices steady for the month.

Propylene's spot market saw good trading activity, starting lower before recovering during the course of the week. Refinery grade propylene (RGP) for February delivery traded down to $0.60/lb, which is notable given that it was in the $0.70s/lb just two weeks prior. RGP for March subsequently changed hands at $0.615/lb. March polymer grade propylene (PGP) fell to $0.67/lb, but then traded back to $0.70/lb and ended the week bid still a penny higher. Nominations for March PGP emerged at a decrease of $0.055/lb, more modest of a loss than some had anticipated. February PGP contracts were flat at $0.775/lb after jumping $0.17/lb in January.

Polypropylene's (PP) spot prices found a temporary bottom, according to Greenberg, after falling $0.10/lb since the middle of January. Generic prime prices nudged up a penny, and the offgrade market firmed a bit more. At the end of the week, buyers were still out looking for material in the low $0.70s/lb, but Greenberg said many of those blow-out offers seemed to be gone. The market found some strength after the initial March PGP nomination of down just $0.055/lb was floated: a sharper decrease had been anticipated.

Final thought from Michael Greenberg

Turmoil in the Middle East has led to significantly higher energy prices, creating uncertainty in the downstream resin markets. Spot resin trading was very active in February and prices were volatile; PP contract prices were flat and PE will be up as much as $0.03/lb. Processors have been limiting purchases and paring back inventories, but some are now starting to feel a bit exposed. For the fourth month in a row PE producers will attempt to increase contracts by the same $0.05/lb. Average PP contracts will move lower along with PGP contracts, but the level is still to be determined.