Market overview: The spot resin markets continued to experience heightened trading activity in the face of steep price increase nominations. Spot-trading platform, The Plastics Exchange (TPE) noted that material offerings were heavy last week, with overall spot prices mixed. Numerous processors entered into the market, but generally sought low volumes of material, as they wait and see how contract prices ultimately settle. Producers are seeking to raise January resin contracts by as much $0.11/lb for polyethylene and $0.19/lb for polypropylene. The export markets are currently relatively quiet.
Energy markets: The key U.S. energy markets moved higher last week, with February crude oil futures recouping the previous week's losses and gaining $3.51/bbl to settle at $91.54/bbl on Friday. February natural gas futures rallied $0.058/mmBtu to end the week at $4.48/mmBtu. The crude oil : natural gas price ratio expanded slightly back out to almost 20.5:1, which is more than three time the ratio considered parity.
Ethylene's spot market traded in a narrow range, with numerous transactions on either side of $0.42/lb. The week's final trade was at $0.4225/lb, which was about steady. Ethylene for February delivery traded once at a $0.005/lb discount to January. Operating rates at Gulf-area crackers are strong, with just one major outage noted, and there are only a few planned maintenance projects scheduled for the first quarter, indicating that supply should remain steady. TPE CEO Michael Greenberg noted that one year ago, a spate of outages sent spot ethylene prices soaring, eventually reaching above $0.70/lb.
Polyethylene (PE) spot availability increased and ample supplies of most commodity grades could be sourced. Prices did alter a bit based on grade, but overall they all remained within a penny of last week's levels. There are some railcars offered into the spot market and material is fairly liquid in Houston warehouses. TPE notes that there is technically $0.11/lb of price increases currently in play, but producers are really only trying to implement the $0.05/lb that did not become firm in December. According to Greenberg, at mid-month, "even a nickel increase could go either way."
Preliminary American Chemistry Council (ACC) production data showed that total PE sales in December fell short of 3 billion lb, which was about 100 million lb less than the 2010 monthly average. Domestic sales were a little soft at 2.34 billion lb, while the export market took a healthy 632 million lb, equating to more than 21% of total PE sales in December. Operating rates ran at 94.5%, which was too much, as inventories increased over 200 million lb. Aggregate producer inventories ended the year at just more than 3 billion lb, which aside from May, is the most in two years.
Propylene's spot market saw good trading activity, with a number of confirmed transactions reported. Refinery grade propylene (RGP) prices were nearly steady with all trades at or slightly below $0.72/lb. Polymer grade propylene (PGP) changed hands at $0.78/lb, about $0.03/lb higher than the previous spot trade in mid-December. February PGP was sold at $0.75/lb. The big news, according to TPE, is that January PGP contracts settled at $0.775/lb, up a huge $0.17/lb from December, which could have at least short-term demand destructing consequences downstream.
Polypropylene (PP) prices continue to rise, although just by another penny this past week. Spot PP prices are up $0.05/lb in January, on top of the $0.11/lb gain during December, which greatly out-shone the $0.03/lb December contract price increase. Rapidly rising propylene monomer costs are fueling the increases, as crackers continue to favor light feedstocks, ultimately limiting propylene production. Spot PP resin availability has however improved, as resellers look to capitalize by selling their older warehoused inventory and producers offer out their widespec railcars.
Preliminary ACC production/sales data show that total PP demand in December was 1.43 billion lb, about equal to the monthly average of 2010. PP exports were 107 million lb, which was within a million lb of the 2010 average. Domestic demand was 1.32 billion lb, also right on par to the average monthly sales figure for 2010. PP reactors ran at just 83.45%, less than the 87% run rate during 2010. Aggregate producer inventories ended the year at about 1.61 billion lb, drawn down by about 58 million lb from the beginning of December.
Final thought from Michael Greenberg:
Although there are double-digit price increases nominated in January for both PE and PP contracts, at mid-month, it appears that the results will be starkly different. The spot PE market has stagnated as spot ethylene prices have dropped about $0.12/b from their December peak, challenging even a $0.05/lb increase implementation. Spot PP prices however, have run higher trying to keep pace with those January PP contracts pegged to PGP monomer which just settled up $0.17/lb - yikes!!"