Resin pricing: Gains seen for some LLDPE film grades

The spot resin markets continued cool for the first part of the week (June 9-13), but then activity heated up, particularly for polyethylene film grades, according to The Plastics Exchange. Prices for most PE commodity resins were steady, although strong processor demand for LLDPE, amid limited supply, lifted those prices by as much as $.02/lb, depending on grade. PE producers have consistently resisted the call for price relief and June contracts will likely roll over once again. Even though polypropylene contracts are being marked down $.03/lb in June, spot PP prices were flat this week and so far in June; spot PP took a dive in May and contracts are just catching up.

Both major US energy markets rallied in more volatile trading. Crude Oil futures, spurred by potentially supply disrupting conflict in Iraq, spent the entire week in higher territory. The July futures contract reached gains of $5/bbl, before ending the week at $106.91/bbl, up $4.25/bbl. July Natural Gas futures were mostly lower, but staged a late week surge and settled Friday at $4.739/mmBtu, eeking out a $.029/mmBtu gain. Ethane prices moved fractionally higher to $.295/gal ($.124/lb). Propane also saw little change and ended the week around $1.035/gal ($.293/lb). The Crude Oil : Natural Gas ratio expanded to 22.5:1.

Spot ethylene trading was active again and the market reversed the previous week's gains. ExxonMobil's Beaumont cracker is returning onstream after three months of planned maintenance; several other crackers remain offline for their scheduled turnarounds. Ethylene for June delivery dropped from the get-go, quickly shedding a half-cent to $.56/lb. The market proceeded lower and most recently changed hands at $.545/lb. There was good activity in the deferred months and the forward curve flattened a bit over the balance of 2014, where less than a $.02/lb discount is shown for December. The 2015 curve actually steepened a little with about a $.045/lb break given during the course of that year.

Spot polyethylene trading was solid and prices were mostly steady, but gains were seen for some LLDPE film grades. Initial reports show that in May, domestic PE demand improved to 2.66 billion lbs, 110 million more than the trailing 12 month average. It seems that processors, many frustrated by lack of price relief, came to the market anyway to restock their resin coffers. However, exports were soft again; the 534 million lbs tally was 100 million lbs below the trailing 12 month average. It was the 4th straight month under 575 million lbs. Production complications kept PE reactor rates to just 92.4% contributing to an overall 154 million lb draw from collective producer inventories. June began with 3.22 billion lbs of polyethylene on hand, almost 80 million lbs below the trailing 12 month average.

Spot propylene was thinly traded and prices continued to soften. PGP for June delivery initially traded at $.645/lb, down a half-cent. It most recently transacted at $.64/lb, having recovered a half-cent from the week's low of $.635/ lb. The forward curve is fairly flat with similar prices seen for the rest of 2014. June PGP contracts settled earlier in the month at $.675/lb down $.03/lb; current spot levels indicated that a slight decline could occur for July, but there is still plenty of time for things to change. June RGP most recently changed hands at $.5375/lb, maintaining spotsplitter margins of a dime.

Spot polypropylene trading was subdued again and prices held their level. Although June PP contracts settled down $.03/lb, the spot market had already taken the hit in May. Those lower spot prices apparently contributed to stronger domestic purchases of 1.395 billion lbs, as indicated by initial reports - which could still be revised. May PP demand was 65 million lbs above the trailing 12 month average. May PP exports were 34 million lbs, just 2.4% of total sales and therefore somewhat insignificant. Polypropylene producers ran reactors at 92.2%, the strongest since Aug 2013. Total PP production and sales were balanced, so collective upstream resin inventories entered June at 1.525 billion lbs, which is 35 million lbs above the trailing 12 month average.

Final thought from The Plastics Exchange CEO Michael Greenberg:  

Spot resin trading activity increased, offsetting a very slow start to June; bringing Plastics Exchange completed volumes back up to about average levels at mid-month. Prices for both PP and PE were mostly steady with notable strength seen in LLDPE film grades. LDPE resin availability continued to improve, but not quite to the flush levels of HDPE. Very strong crude oil prices could put upward price pressure on world naphtha based ethylene and propylene monomers and if sustained, in turn lift world resin prices. This of course would aid North American exports and support the domestic resin market. Although crude are now the highest in nine months, there has not been a knee-jerk reaction - it's just something to watch.