May resin trading results have been ‘excellent’ thus far

Spot resin trading continued to run at a rapid rate; there was a strong flow of orders coming form both buyers and sellers, creating at times, relatively effortless trade, according to The Plastics Exchange. Polyethylene prices moved higher, more than erasing the losses seen in the previous week. Spot strength could inspire PE producers to stand firm and hold contract prices flat again this May - much to the dismay of processors. Spot polypropylene managed steady this past week but remains a penny lower so far this month, a bit more than the modest $.005/lb concession in contracts; however, it seems though that there is still more to go. International prices for both major commodity resins continue to thwart incremental high-volume exports; with still challenging Latin American markets, PE export volume could fall off further in May. Interestingly enough, imported PP currently sits on both American coasts.

The major US energy markets continued their recent trends and again settled in opposite directions. July rolled to the front month contract for Crude Oil; the market was essentially higher all week, closing Friday at $101.58/bbl, a $2.27/bbl gain. June remained the most actively traded Natural Gas futures contract; it slid from the get go, but then erased half the losses by Friday's close. When the dust settled, the market stood at $4.413/mmBtu - a net loss of $.118/mmBtu. The Crude Oil: Natural Gas ratio widened to 22.9:1. Spot Ethane prices slid another half-cent to $.2825/gal ($.119/lb). Spot Propane prices continued to come un-done, shedding yet another $.04/gal to end the week at the pivotal level of $1.00/gal ($.284/lb).

The spot ethylene market began under pressure, still reeling from the $.03/lb loss in the previous week. Material for May ticked lower on light volume and then transacted midweek at least a handful of times at $.535/lb, down a penny. By Friday the market had recovered much of the losses and most recently changed hands at $.5425/lb. Ethylene is again flowing freely from Texas to Louisiana through CPChem's Evangeline pipeline. Dow's Plaquemine, LA crackers are also getting fully back on stream; these helped bring the LA premium, which had once expanded beyond $.20/lb, back to single digits. Four gulf crackers remain offline for maintenance, but the turnaround season is starting to wind down. The forward curve is backwardated to the extent of $.02/lb by Dec while larger discounts, as much as $.04/lb more, are given through the end of 2015.

Our spot polyethylene market saw brisk trading for the third straight week; transacted volumes were high and prices recovered. Flat pricing and limited spot exports during March and April contributed to slack spot sales and stale supplies amongst the reseller and exporter community. At the end of April, courageous companies began to shave their prices to generate demand and turn over their aged inventory. The strategy was very effective as spectacular sales over the past several weeks greatly reduced uncommitted warehouse stocks, even leaving pockets of sparse supplies.

HDPE for film, blow and injection molding each rose a penny this past week, while spot LDPE film grades popped a deuce. In fact, LDPE High Clarity is now outright hard to source and could lead to the return of a sustainable premium over other film resins. With much of the enticing pricing disappearing, new costs do not seem as attractive and could represent the proverbial head fake, so aside from immediate needs, we caution against buying in too much at higher levels, the report stated.

Spot propylene activity picked up a tad, though prices remained pressured. PGP for May delivery initially transacted steady at $.675/lb, but then worked its way down to $.6675/lb. It most recently traded at $.67/lb with additional selling interest unsatisfied. May PGP contracts already settled at $.705/lb; it took 4 months to finally wipe away the $.04/lb Jan increase.

Current spot levels and negative market sentiment are already subtly pointing to a further decline in June. RGP saw some good action, selling first at $.60/lb, but then several times between $.57-.59/lb, which is a new lower range.

The group's polypropylene trading was solid again, with above average volumes transacting at mostly flat and sometimes lower prices. Spot PP has been selling at a distinct discount to contracts and it seems that processors are starting to tap this market with greater frequency. Even though downstream resin inventories are already fairly light, given that so many processors have expressed their frustration with the scant ó cent decline in May PP contracts, we might expect actual direct orders to fall short of forecasts. This could bring greater availability of Generic Prime supplies, which are already ample, further weighing on the market. Reduced resin reactor rates leading to weaker PGP prices could then be next. We have seen this scenario play out several times, we do not expect a huge breakdown in prices, but some additional level of correction might be ahead.

Final thought from The Plastics Exchange CEO Michael Greenberg:

May resin trading results have been excellent thus far; April volumes were already exceeded mid-month, although margins have been squeezed. Resellers and exporters have been aggressively cutting deals to liquidate old polyethylene inventory and make room for opportune purchases that could arise. In general this exercise has been successful - burdensome supplies have been eliminated and with much of the urgency alleviated, asking prices floated higher this past week. The situation is not quite the same in polypropylene where plenty of material remains in both packages and the continuous flow of fresh railcars. So here's to a strong 2nd half of May - and hoping that higher spot PE prices will not turn off this recent spate of buying.