Resin pricing: Polyethylene has quickly soared $.06/lb

Spot resin trading continued to run at a very rapid rate and completed transaction volumes were high, especially for the first week of August, according to The Plastics Exchange. Polyethylene and polypropylene prices advanced further; most grades have recorded gains in each of the past five weeks. Once PGP settles, August PP contracts will likely jump around $.06/lb - some resin producers are also looking to expand margins. Despite strong spot performance, PE contracts will be flat in August as producers en masse have only recently issued fresh (mostly) $.03/lb increase nominations, but not until September. Export inquiries are plentiful but rising spot domestic prices create a better net-back locally, so discretionary pounds are staying in the U.S.

The U.S. energy markets maintained their recent trends. Crude Oil volatility was reduced, trading in just more than a $2/bbl range for the week. The September futures contract shed $.23/bbl to settle Friday at $97.65/bbl, about $9/bbl below levels seen near the end of June. September Natural Gas futures recovered $.164/mmBtu, over 4%, to end the week at $3.962/mmBtu; which is about $.90/mmBtu below the mid-June peak. The Crude Oil : Natural Gas ratio shrunk to 24.6:1, which is still almost 4X the ratio considered parity. Spot ethane gave back the previous week's 3/4-cent gain reverting to $.225/gal ($.095/lb). Spot propane recovered more than $.02/gal to end the week around $1.0275/gal ($.291/lb).

The spot ethylene market was active again; prices were volatile and traded lower. There were a couple of unexpected cracker outages and two other crackers remain offline for planned turnarounds. Ethylene for August delivery began the week steady and headed south from there, at one point trading down to $.64/lb, more than a nickel loss. By the end of the week, the market in Mont Belvieu, TX recovered to $.67/lb, still down more than a deuce. The forward markets were extremely busy and the curve jostled around, ultimately flattening a bit. The discount for Dec 2014 is now about $.05/lb while an additional $.065/lb relief into the mid-$.50s/lb is seen by the end of 2015.

Spot polyethylene trading was strong and prices rose further; most commodity grades have now rallied $.06/lb during the past 5-6 weeks. Persistent supply constraints have limited material availability, so some processors are chasing resin to fill their short term needs. Many grades including HDPE blow molding, HMWPE film, LLDPE Butene and LDPE Clarity are scarcely available and in most cases, delivered spot prices are now above contracts. Larger processors, whose needs are still met directly, have turned away from spot at these high levels. All polyethylene producers have now issued price increases for September, mostly seeking $.03/lb, some a penny more - which would help balance spot/contract prices.

The spot propylene market quieted down and prices eased a bit. PGP for August delivery traded at $.70/lb and then another quarter cent lower, bringing the weekly loss to at least $.015/lb. August PGP has been nominated to increase $.065/lb to $.74/lb, but have yet to settle which is a little unusual by this time of the month. While a sizable increase will surely be inked, the softer spot levels come in the midst of negotiations and could limit the magnitude of the August hike. PGP for delivery through the balance of the year is priced to slide a penny or so; markets have now been made through the end of 2015 where the discount grows to several cents. RGP was inactive, but the market was indicated in the high $.50s - low $.60s/lb.

Spot polypropylene trading was better than average and prices added another cent; the market has rallied $.08/lb since mid-June. As spot material sells, new offers are shown at ever higher levels, causing some processors to take a second look at their products' profitability given these resin costs. There are nominations to increase August polypropylene contracts by $.065/lb or even more, potentially bringing PP prices to the highest levels of 2014. The price uncertainty has apparently caused some processors to limit contract orders which could be evidenced by the appearance of Generic

Prime railcars, albeit expensive, towards the end of the week. Asking prices are getting up there; the market might ease a little when contracts finally settle. Offgrade resin could still be found in the low $.80s/lb, which by comparison actually seems to be a deal.

Final thought from The Plastics Exchange CEO Michael Greenberg: 

Spot resin trading has not let up, August began with a bang and prices continued higher, unabated. Although market sentiment still remains friendly to bullish, spot prices have risen to dizzying heights and could begin to stall near here. Polyethylene has quickly soared $.06/lb, but there is only a $.03/lb increase slated for September, so it could be challenging to maintain market momentum deep into next month. Spot PGP monomer first rallied fiercely, but has now cooled off a bit, so the August PP increase might settle closer to a nickel than the max dime floated, which could take some steam out of the market. We have been bullish spot resin since mid-June and the markets are still strong, but they have come a long way in a relatively short time so we might be ready for a little breather.