The spot resin markets ended the first quarter with a bang and continued to be very active as April began on Tuesday, according to The Plastics Exchange. Buyers and sellers both came to play, yielding perhaps the highest weekly volume so far in 2014. Spot polyethylene prices eased a half-cent and polypropylene slid a penny amid a healthy flow of bulk railcars and packaged inventory offerings. PE contracts were steady in March and while nominated to increase $.06/lb in April, should roll flat at best and a decrease could even be justified. PP contracts were down $.015/lb in March and while PGP was nominated steady for April, we think another $.01-.02/lb decrease would be warranted.
The major US energy markets were softer the first part of the week and then rallied the latter half. May crude oil futures traded in less than a $3/bbl range; the market settled Friday at $101.14/bbl, a gain of $1.68/bbl. May natural gas futures were unable to fully recover their early losses, but trimmed them to just $.046/mmBtu, ending the week at $4.439/mmBtu. The crude oil: natural gas ratio sits at 22.8:1; around 6:1 is considered parity.
Spot ethane prices eased about $.0075/ gal to end the week at $.2875/gal ($.12/lb). Spot propane added a couple cents to settle Friday at $1.08/gal ($.306/lb).
The spot ethylene market saw reduced activity while the majority of market participants attended an industry conference. A couple of crackers remain offline for their scheduled turnarounds. Although there were a number of month-to-month spread trades, outright transactions for prompt material were limited. Ethylene for April delivery most recently changed hands this week at $.5125/lb, which was fractionally lower. Spot ethylene prices have been very stable over the past two months, stuck in the low $.50s/lb. The forward curve has flattened its backwardated shape; all months through the balance of 2014 are now priced within a penny of April.
The spot polyethylene market was very active, with multiple deals done each day all along the product spectrum. Material availability has been very good and prices were down $.005/lb across the board this past week. Most PE grades have dropped $.015/lb during the past month, with fractional melt HDPE, for both film and blow molding, falling at least a penny more. Still, almost all spot polyethylene grades remain up $.015/lb during 2014; LLDPE film has held on to a $.035/lb gain.
LDPE film, the lone negative standout, is actually down $.005/lb during 2014, but a recent spot demand surge seems to be cleaning up the supply overhang. The spot export market remains sluggish and Houston traders have plenty of high-cost material they are looking to move. In general, these exporters would require a moderate discount from recent levels, which have already been easing, before they seriously entertain their next meaningful round of purchases. Polyethylene contracts should buck the current $.06/lb increase effort in April.
The spot propylene market was mildly lower in sporadic trading. Petrologistics' PDH unit returned to operation after being briefly taken offline for planned maintenance. PGP for April delivery transacted several times and as much as $.015/lb lower, but most recently changed hands at $.68375/lb, down just more than a half-cent. The PGP forward curve took on a more pronounced backwardated shape, with prompt material commanding the year's highest price and discounts provided each month until $.025/lb is afforded for Dec 2014. April PGP contracts were nominated to roll steady at $.72/lb, but given softer spot market conditions we feel that a $.01-.02/lb decrease could be seen. Spot RGP prices dipped below the $.60/lb threshold and traded a few times in the high $.50s/lb.
Spot polypropylene trading was better, but still not robust. The market remains amply supplied given months of dismal demand, and prices slid another $.01/lb. After jumping in early Jan, spot PP prices have since eroded and are now down a net $.03/lb for 2014. However, PP contracts through March are still up $.015/lb and April PGP was only nominated flat, although we think a small decrease will develop. While there has only been a normal flow of producer cars, domestic resellers and Houston traders are well stocked with material and are working hard to clear their surplus resin. Some processors whose inventories have been depleting are picking away at the discounted spot offers, but are holding out for lower contract prices before they buy with more vigor.
Final thought from The Plastics Exchange CEO Michael Greenberg:
The heightened spot trading activity seen at the end of March continued right through the first week of April. Spot prices for both polyethylene and polypropylene have been slipping the past several weeks and the growing discount to contracts are catching processors' attention. PE producers are already shying away from their $.06/lb increase nominated for April and could be challenged to keep contract prices flat this month. Spot PP resin and PGP monomer markets have been softer, but resin contracts will follow monomer costs again and PGP has already been nominated flat for April. We think a PP contract price decease of $.01-.02/lb makes more sense and would be healthier for the market. Polypropylene demand has been crimped by high US monomer costs and resin prices; incidentally, we have started seeing PP imports on both coasts competing for domestic resin orders.