The energy markets remained volatile and the key products again moved in opposite directions. September moved to the front month Crude Oil contract; it traded in a tight $2.5/bbl range and ended the week at $102.09/bbl, up just $.14/bbl. Natural Gas prices continued to unravel, the Sept contract eroded another $.168/mmBtu and settled Friday at $3.707/mmBtu; 25% below this season's peak. The Crude Oil : Natural Gas ratio has shot out to 27.5:1, the widest since Oct 2013. Spot Ethane slipped another penny to $.225/gal ($.095/lb). Spot propane added a half-cent to $1.04/gal ($.295/lb).
The spot ethylene market had another relatively active week, but volumes tapered off the fervent pace seen during the first half of July. A couple of crackers returned back onstream, but at least three others remain offline for maintenance. Ethylene for July delivery began the week steady at $.63/lb and headed north from there, eventually trading up to $.665/lb, which is a new high for this move. August Ethylene was priced a shade below prompt and the forward curve then falls off precipitously. Future months are priced at increasing discounts; Ethylene for Dec 2014 can be procured at $.59/lb, while Dec 2015 is indicated more than $.11/lb below current levels.
Spot polyethylene trading continued to run at a rapid rate and prices rose as much as $.02/lb depending on grade. All spot commodity PE resins during 2014 are now up $.05/lb, except for super-tight LLDPE, which has soared $.09/lb. Cracker outages have limited monomer availability thus affecting polyethylene production and resin availability. Producer railcar offers are scarce while resellers with uncommitted inventories are only slowly doling out material, and when sold, raising prices for subsequent offers. Processors, some requiring material due to Force Majeure conditions and others simply sensing higher prices still ahead, have been aggressively sourcing polyethylene. We have been bullish and foresee this upswing continuing.
The propylene rally accelerated, building on the $.045/lb gains achieved in the several previous weeks. PGP for July delivery has now risen above the $.70/lb level and August PGP, which has become the market focus, most recently changed hands at $.705/lb - a weekly $.03/lb gain. Earlier in the month, July PGP contracts rolled steady at $.675/lb. Based on the typical spot/contract relationship, August PGP contracts can be estimated around $.73/lb, which would be a $.055/lb increase. If the spot market momentum continues before contract levels are agreed, the increase could widen. August RGP jumped several cents to $.59/lb.
Spot polypropylene trading was busy, but completed volumes fell short as inadequate quantities of well priced spot material could be sourced. Active PP buying by processors and resellers amid limited supplies has maintained upward pressure on prices. August PP contracts are going to settle up at least a nickel and quite possibly more, so with some uncertainty at hand, Generic Prime resins are essentially absent in the market. Aside from rougher offgrade and some random copolymer resins, expect to see prices for very good offgrade or Prime to be priced starting with an 8.
Spot resin prices continued to rise, placing most grades into new high territory for the year. Strong spot resin demand coupled with rising monomer costs and limited plastics supplies have translated into outright bullish market sentiment for both polyethylene and polypropylene. Fresh railcar offers are few and far in between, while traders are still generally looking to add to inventories when sharp-priced material can be found. This rally has legs; we anticipate continued strength at least into August and perhaps for several months ahead. and we have yet to even see an inkling of a hurricane threaten the Gulf.