TPE resin prices, Feb. 20-24: PE flat, PP down: N.A. resin prices sprint ahead of global markets

(TPE). It is once again late in the month and PE contracts remain unsettled, as producers have not backed away from their second attempt at a $0.06/lb price increase, citing high ethylene costs. Resin supply is currently ample and demand is a bit soft. February polypropylene (PP) contracts jumped $0.165/lb along with polymer grade propylene (PGP) and are poised to move higher again in March, although competitive resin offers from well-stocked domestic resellers and Houston exporters have "kept a lid on the spot resin market", according to TPE CEO Michael Greenberg.

Energy markets resumed their long-term trends, with crude oil and natural gas futures moving in opposite directions. April crude oil futures accelerated recent gains adding another $6.17/bbl to finish at $109.77/bbl, a 9-month high. Natural gas futures have been unable to hold on to their occasional gains, slipping back $0.129/mmBtu to settle at $2.695/mmBtu on Friday. The crude oil : natural gas price ratio blew out to a near-record level of 40.7:1.

Ethylene spot prices were mostly steady, although sizable volumes of material continued to change hands due to several cracker turnarounds. Although prompt supplies still command a small premium, the forward curve has flattened with ethylene for delivery over the next several months trading around $0.65/lb. The market is priced to ease in the 3rd quarter when the majority of crackers have completed this season's scheduled maintenance. Ethane prices jumped about a nickel to $0.54/gal, which equates to $0.227/lb. With ethylene margins above $0.40/lb, producers are encouraged to bring crackers back online quickly and it would not be surprising to see some scheduled turnarounds postponed to later in the year.

Polyethylene (PE) was mostly steady, with generic prime offers generally reflecting at least half of the $0.06/lb price increase still sought for February, while offgrade prices have started to build a discount. Contract negotiations are again coming down to the wire; according to TPE, and while no producers have conceded the increase, overall demand is questionable and might thwart the effort for the second month in a row. Although processors speak of better resin throughput, many are still working down resin inventories procured near the end of 2011. In the meantime, rising U.S. PE prices disabled the high volume spot export sale, limiting January exports to the lowest level in 3 years, which contributed to gains in upstream inventory.

Propylene's market was quiet until the end of the week when a nomination emerged to increase March PGP contracts by $0.15/lb. Existing offers for March PGP at $0.74/lb were scooped and asking prices moved a couple cents higher. "The nomination was quite a shock," Greenberg said, "since monomer has only traded in the low $0.70s/lb during the past several weeks." That said, TPE noted that near-term fundamentals are bullish, with ethane hugely favored over propane as the cracker feedstock of choice. Since ethane generates mostly ethylene and only a limited amount of propylene, PGP supplies are tight. The maintenance season is also underway and a series of crackers and refineries will be offline through May, further tightening supplies. There was a $0.22/lb increase nominated for February PGP, but "only $0.165/lb" took hold. "We will see if gentler nominations are presented for March," Greenberg said.

Polypropylene (PP) spot prices eased a penny amid weak demand and ample spot-resin availability. Processors appear to be well-stocked with resin, having purchased 1.45 billion lb of PP in January, a figure eclipsed just twice in the past three and a half years, according to TPE. Several resellers are still looking to find homes for well-priced railcars procured early in the month while Houston traders also have old inventory to sell. Despite the possibility that PGP monomer and PP resin could see another steep increase in March, PP producer railcar offers continue to flow and on some occasions are offered around the price of spot monomer.

Final thought from Michael Greenberg  

The end of February is practically upon us and price uncertainty is again at hand. Polyethylene contracts have not yet settled, and the $0.06/lb increase is still in play; producers point to spot ethylene costs in the mid-$0.60s, while processors see phenomenal margins already upstream in ethylene production. Polypropylene processors endured a hefty $0.165/lb increase in February, there was talk of a $0.03-$0.05/lb increase slated for March, but the first nomination emerged at $0.15/lb! Resin processors of both commodity grade materials bought heavily ahead of these increases and are doing their best to resist high price purchases. North American resin prices have sprinted ahead of most international markets, limiting the profitable export of excess material given market prices.