PE mixed; PP up $0.02/lb: TPE resin pricing, Feb. 27-March 2

Spot plastics markets were busy and commodity grade prices mixed as February transitioned into March. Spot-trading platform The Plastics Exchange (TPE) reported that February polyethylene (PE) contracts settled with a $0.03/lb increase, while polypropylene (PP) contracts rose $0.165/lb early in the month. March resin prices are nominated to go higher with different levels of increases pegged to PE ranging between $0.03 to $0.10/lb, the latter representing the $0.03/lb not achieved in February plus an additional $0.07/lb. TPE CEO Michael Greenberg noted that it appears that a lone producer is seeking to "split the dime," asking for half the increase in March and the other portion in April. Polymer grade propylene (PGP) and corresponding PP resin contracts were initially nominated to increase $0.15/lb, but then again more recently at $0.07/lb.

TPE resin prices, March 2, 2012

Energy markets fell in volatile trading last week, as April Crude Oil futures reached above $110/bbl on unfounded rumors of a Saudi pipeline explosion, but then fell back to end the week at $106.70/bbl, a net loss of $3.07/bbl. Natural gas futures continued to trade lower, falling $0.211/mmBtu to settle at $2.484/mmBtu on Friday, just above contract lows. The crude-oil:natural-gas price ratio moved out to a new record, a shade below 43:1.

Ethylene spot prices were driven still higher in fairly active trade, according to TPE, as supplies remain constrained with more than 10% of capacity currently offline due to planned turnarounds and an unexpected and temporary cracker shutdown. Ethylene for March delivery most recently transacted at $0.685/lb, about $0.03/lb above the previous week. The market is currently priced to ease after the majority of the maintenance season ends in May; ethylene for the 3rd quarter traded in the low $0.60s/lb, while 4th quarter ethylene was priced at a dime discount to prompt delivery. Ethane prices shed a penny to $0.53/gal.

Polyethylene (PE) contracts and prices for February increased $0.03/lb, when market participants finally reached an agreement. However, Greenberg said, spot PE prices were mostly steady to a penny lower, with that level of increase having already been priced into the market. Upward pressure remains from the supply-side as producers look to implement the balance of the $0.06/lb increase not affirmed in February. In addition, some producers are looking to add some or all of the $0.07/lb increase also on the table. Prices from stocking distributors/resellers are generally floating higher along with producers' offers, but for those requiring truckloads or a few railcars of most PE grades, there are ample amounts of material available in spot market.

Propylene's spot market continued to rally, with prices reaching as high as $0.76/lb, before easing a tad to finish at $0.755/lb - a $0.015/lb gain. Refinery grade propylene (RGP) most recently changed hands at $0.69/lb. Propylene supplies are expected to remain tight at least throughout the spring as crackers and refineries perform scheduled maintenance. Even after full capacity is restored, supplies will be limited by cracker operators choosing to process more competitively priced ethane rather than propane. A propylene producer nominated to increase March PGP contracts by a whopping $0.15/lb, but a second, more reasonable increase was subsequently issued for $0.07/lb.

Polypropylene's (PP) spot market resumed its upward trek, adding $0.02/lb. After enduring a $0.165/lb increase in February, PP processors are facing another substantial price increase, which currently appears to be around $0.07/lb. Although buyers stocked up nicely ahead of these increases, downstream inventories are starting to wear thin and buyers are facing sticker shock from prime railcar offers priced in the mid-high $0.80s/lb. For those that can handle offgrade railcars or even prime material in bags/boxes, "There are still plenty of well-priced opportunities to be had," Greenberg said. Although the spot market will likely remain discounted to rising contracts, the low-priced offers will likely soon clear as it seems that this monomer driven resin market will remain relatively high-priced for the foreseeable future.

Final thought from Michael Greenberg

Another month, another price increase—so what else is new? The cracker turnaround season has limited monomer supplies and is placing upward pressure on resin markets. Producers of both PE and PP are looking to pass along their higher direct feedstock costs on to contract buyers, but in the meantime, the spot resin markets are lagging a little. The Houston market is well-supplied in general. Fully integrated PE producers are making windfall profits between ethane and ethylene, so they can export polyethylene at will; however, incremental exports through the secondary market are challenged by current asking prices. PP exports are limping along and are not much of a factor.