Spot resin trading remained robust, capping off a very busy July, according to The Plastics Exchange. Prices for both polyethylene and polypropylene continued to march higher, building on an already strong month of gains. Although there was a small flurry of railcar offers, they were mostly made available from resellers that already committed to the resin and had held out shipping disposition to maximize margins in this rising market. Resellers' uncommitted resin stocks are dwindling in Houston and around the country; asking prices for available materials are continually marked higher and higher.
The key US energy markets again moved in opposite directions. September Crude Oil futures traded in a wide $5/bbl range and ended the week near the lows at $97.88/bbl; the $4.21/bbl loss brought oil back to levels not seen since early May. Natural Gas price volatility diminished and the market stabilized after a nearly two-month freefall. The Sept futures contracts managed a scant $.011/lmmBtu gain to settle Friday at $3.798/mmBtu. The Crude Oil : Natural Gas ratio contracted to 25.7:1. Spot ethane recovered about 3/4 cent to $.2325/gal ($.098/lb). Spot propane lost $.035/gal to close out the week at $1.005/gal ($.285/lb).
Spot ethylene trading resumed its active pace. ExxonMobil completed the turnaround of its Louisiana cracker, while at least two other Gulf crackers are still offline for maintenance. Williams announced that the return of their Geismar, LA cracker will be delayed into October. The ethylene market for prompt delivery began the week transacting in the mid $.60s/lb, which was mostly steady and then surged late in the week.
By Friday, August ethylene reached above $.69/lb for almost a $.03/lb gain. The bulk of the recent rally has been in the front months, causing the forward curve to steepen further. Ethylene for delivery in Dec 2014 is priced at a $.07/lb discount to prompt and the discount for Dec 2015 is now a whopping $.15/lb.
The spot polyethylene market ended the month with a bang; transacted volumes were again above average - further thinning out availability. All commodity grade PE prices were up $.04/lb during July and August began on Friday by raising another penny. Spot polyethylene prices are starting to seem a bit frothy up here, especially since producers did not issue supporting price increases for August. Some nominations for September started to filter through this week, averaging around $.03/lb, but not all producers have issued letters.
This spot market rally still has legs, but the upside from these levels could become limited. The propylene market was a bit more active and prices edged a little higher. August PGP traded in a relatively tight range and ultimately tacked on another penny to $.715/lb. July PGP contracts were priced at $.675/lb; nominations have emerged to increase September PGP contracts by $.065/lb and we feel that the spot market supports this magnitude of increase. The forward curve is fairly flat with less than a penny separating monthly prices through the end of 2014. RGP was a couple cents softer at $.57/lb, pushing spot splitter margins out to a wide $.145/lb.
Spot polypropylene trading was solid and prices continued to climb, adding another $.015/lb this past week.
Ever firming PGP monomer costs are lifting expectations for the level of the August PP price increase, which now ranges between $.065/lb and $.105/lb. So even as the spot PP market rises, processors have been eager to procure good offgrade material at prices which they still deem fair. Most PP offers are now floated in the lower $.80s/lb ex-works or mid-$.80s/del in railcar; while they are quite a bit a higher than during the spring, The Plastics Exchange reports that they have certainly seen this level (and above) before.
Final thought from The Plastics Exchange CEO Michael Greenberg:
Both polyethylene and polypropylene continued their upward trek. PE prices have jumped a nickel in the past five weeks and PP sprinted $.06/lb higher in July alone. August polypropylene contracts will likely see their largest one-month increase in 18 months, tracing back to the $.15/lb hike of Jan 2013. There is no real effort to increase polyethylene contracts in August, although the spot market would currently support one.
Some nominations have been seen for September, but that is still a long way off. The last successful PE increase was $.04/lb in Feb 2014. Spot exports demand for both PE and PP has improved, but there are better opportunities to just keep the resin here in the US.