The spot resin markets remained very busy and transacted volumes ran well above average for the third week in a row, according to The Plastics Exchange. There was a good flow of fresh railcar offerings, and although resellers, both national and Houston-based, are still providing significant spot liquidity. Their new purchases so far in April have generally been against customer orders, and their burdensome old inventories are being chipped away by processors. Most polyethylene grades shed a half-cent and polypropylene held steady. Polyethylene producers by and large have already forgone their $.06/lb increase effort in April, while market chatter in the processor community is growing louder as the call for a $.02/lb decrease is spreading. Despite an early nomination for a rollover, PGP contracts have seen an initial agreement to ease $.01/lb in April, but it has not been finalized.
Both major US energy products moved markedly higher. Crude oil markets felt early pressure and briefly dipped below the $100/bbl level, but then rallied from there. The May futures contract ended the week at $103.74/bbl, it was a solid $2.60/bbl gain. May natural gas futures had four straight winning days, then pulled back a bit on Friday
to $4.62/mmBtu, it was still a hefty net $.181/mmBtu gain. The crude oil: natural gas ratio came in a little to 22.5:1. Ethane prices added a penny to $.2975/gal ($.125/lb). Propane prices were up $.03/gal to $1.11/gal (.315/ lb).
The ethylene market was extremely active; a high volume of material changed hands through at least 40 spot transactions and all at higher levels. Late week gains finally pushed spot prices out of their 10-week 2-cent range as ethylene for April delivery ultimately ended the week at $.5375/lb, up $.025lb. While all months of 2014 were
marked higher, a number of spread and strip deals gave the forward curve a little shape shift. The front end has taken on a slight contango as we enter the heaviest of this season's planned turnarounds. ExxonMobil, Equistar and Williams currently have crackers offline, with a few more to come. However, after the next couple months the discounts kick when all crackers, some with expanded capacity, are expected to be back onstream.
Polyethylene trading continued to run at a rapid rate. Processors in need of spot material, particularly due to late and problematic railcars, found ample and timely supply in our spot market. Most PE grades shed half a cent again, except for LDPE, which firmed a half-cent amid better demand. Despite $.06/lb increase nominations, April contracts will roll flat at best and processors might even see their first bit of price relief since a deuce was removed way back in November 2012. As such, national resellers that took on extra inventory at the end of March were pleased to unload their surplus supplies to needy spot buyers. Houston traders, still faced with challenging export markets, have been pushing out material, even at break-even levels if necessary, for cash flow and to make room for their next round of purchases.
There was very little spot propylene business to be done this past week; sure, bids and offers bounced around, but players were mostly just posturing during this time of contract negotiations. An initial settlement for April PGP contracts was seen at $.71/lb, down a penny, but this has not been agreed industry wide. As the spot PGP market was untested transaction-wise, we will keep our prompt PGP level steady at $.68375/lb and the forward curve backwardated to the tune of $.025/lb through Dec 2014. Spot RGP prices nudged back above the $.60/lb level and traded there a couple of times.
Spot polypropylene trading continued to improve to just better than average volumes and prices were steady.
Processors have been working down inventories awaiting and a-hoping for lower contracts, but initial word of a $.01/lb. decrease was not enough to draw excitement. While buyers need to procure fresh material to fill in their supply gaps, contract prices are still relatively high compared to spot, and with little fear of a large increase ahead, most will likely choose to only rebuild slightly and still just procure material as needed.
Final thought from The Plastics Exchange CEO Michael Greenberg:
The Plastics Exchange trading desk was kept buzzing throughout the week. There was a strong flow of orders from both buyers and sellers, bringing excellent market liquidity and a high percentage of completed transactions. April should see a small decrease for polypropylene contracts as a penny was initially agreed for PGP. Polyethylene producers might finally share some of their good fortune downstream and grant some small relief in April or May after achieving $.22/lb of increases since the last decrease 18 months ago - their feedstock costs are only slightly higher since then.