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The balance of pricing power seems tipped slightly towards polyethylene and polypropylene producers, according to The Plastics Exchange. In PE, inventories have grown but remain below historical levels, while in PP, producers will likely be able to pass on increases in polymer-grade propylene, which is approaching $0.54/lb.

PlasticsToday Staff

December 8, 2009

4 Min Read
TPE North American resin pricing, Nov. 30-Dec. 4: PE steady; PP up $0.01/lb

The balance of pricing power seems tipped slightly towards polyethylene and polypropylene producers, according to The Plastics Exchange. In PE, inventories have grown but remain below historical levels, while in PP, producers will likely be able to pass on increases in polymer-grade propylene, which is approaching $0.54/lb.

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Editor’s note: The NewsFeed weekly North American resin pricing report now includes monomer, polymer, spot, contract, and trade data on polypropylene and polyethylene directly from Michael Greenberg, CEO of the plastics spot-trading platform The Plastics Exchange. In addition, the report will also feature a chart summarizing the previous week's trading activity, including volumes and prices. Polyethylene (PE) spot prices were steady to $.005/lb higher, in another week of reduced spot supply, according to Mike Greenberg, CEO of plastics spot-trading platform The Plastics Exchange (TPE). Greenberg says reduced spot supply is indicative market tightness ahead of a pending price increase.

Ethylene prices have been moving higher, surpassing $0.36/lb, and eating into resin producer’s margins. Because of this, there is a renewed energy behind implementing the $0.04-$0.05/lb price increase that didn’t find market-wide support in November. Greenberg notes that while the volume of fresh producer offers was light this past week, supplies were somewhat better than in the previous week. Asking prices for generic prime and good offgrade railcars rose $0.02-$0.04/lb above prices from 10 days ago. Buyers are not always paying the higher prices, but if material is needed immediately, they should expect to pay it. Houston traders are not overrun with inventories but are generally able to offer packaged resin at a discount to domestically delivered railcars.

October production statistics from the American Chemistry Council (ACC) show that in aggregate, PE producers ran their reactors at 91.32%, exported 819 million lb, and domestically sold a slightly below year-to-date 2009 average of 2.261 billion lb. This resulted in a build up of 120 million lb of inventory. While producer inventories have risen 270 million lb since the end of June, they still remain near historically low levels. All together the balance of pricing power currently seems tipped slightly into the hands of the PE producers.

Exports have not been hampered in spite of some recent strength in the U.S. dollar, with the general arbitrage window open to Asia, based largely on favorable North American feedstock costs. The vast majority of North America’s PE feedstocks are derived from the natural gas chain, whereas for the rest of the world, the same feedstocks come from the crude oil chain. A 6:1 crude oil to natural gas ratio is considered parity, but last week it ran at more than 16:1.

Greenberg says many market participants believe producers will scale back production in December, especially given the recent rise in feedstocks. With light upstream inventories at hand, savvy market participants do not anticipate the traditional inventory purge; as a result processors have little choice but to place their normal orders with suppliers. This will help to limit any burdensome inventories from developing and could provide for a tightly supplied market come January, according to Greenberg. “It might not be fun to source spot material the first 10 days of January,” Greenberg noted, “when a price increase will certainly be in play.”

Polypropylene (PP) spot prices edged another $0.01/lb higher this past week, with branded-prime asking prices jumping $0.06-$0.07/lb and reflecting producer’s December price-increase efforts. Generic-prime prices have risen about $0.015-$0.02/lb. Greenberg says that although producers have raised spot asking prices, they have still been met with good demand from processors looking to beat the current price increase.

Propylene monomer spot prices have paused in their upward trek, with initial settlements for December polymer-grade propylene contracts up $0.045/lb over November. If these changes are agreed market-wide, it will bring December PGP contracts back up to $0.54/lb. With cost-push pressures at hand, resin producers once again need to secure a significant price increase just to keep production margins at these modest levels.

October production statistics from the ACC show that in aggregate PP producers ran their reactors at only 84.84% for the month. Exports improved to 165 million lb, but were still nearly 20% lower than the average 2009 monthly volume, while domestic PP sales jumped to almost 1.25 billion lb, a little above the 2009 average. Producer inventories increased slightly to 1.517 billion lb, about 50 million lb above the 2009 average. Greenberg says supply/demand fundamentals appear favorable to producers, and they should be able to pass along current monomer costs increases to resin buyers.

Greenberg notes that some PP processors are experiencing sticker shock, as branded prime PP once again pushes deep into the $0.60s/lb. These buyers are looking to minimize December contract purchases and are seeking generic prime or widespec material as a substitute. PP prices are spiking in spite of top-of-the-chain crude oil prices in the mid-$70s/bbl. Greenberg explains that one of the problems with propylene supply is that production remains constrained by the divergence between heavy and light feedstocks. “With light feedstocks like ethane favored over heavy feedstocks like propane,” Greenberg says, “relatively little propylene is produced, keeping these supplies tight which support prices.” —[email protected]

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