TPE resin prices, Dec. 5-9: PE up $0.02/lb: PP rises $0.01/lb; Producer inventories wane, pricing power shifts

Spot resin trading activity and prices picked up last week, after a slow start to December. Spot-trading platform The Plastics Exchange (TPE) reported that asking prices for fresh railcars were priced higher and there were fewer competitive offers made available by distributors and traders as their inventories diminished. While the actual number of spot offers increased, TPE said current supplies are well below that which was available during the past two months. Right now, it's possible that December contract prices could move in opposite directions. Polypropylene (PP) prices will slide $0.02/lb since polymer-grade propylene (PGP) contracts have initially settled down $0.02/lb. Although December price increases are rarely implemented, polyethylene (PE) producers could install some of their $0.05/lb price increase now, and if not, at least during January.

TPE resin prices, Dec. 9, 2011

Energy markets traded lower, with natural gas markedly weaker than oil. January crude oil futures went below $100/bbl, ending the week at $99.41/bbl, with a loss of $1.55/bbl. January natural gas fell $0.267/mmBtu, a drop of more than 7%, to settle at $3.317/mmBtu last Friday. The crude oil : natural gas price ratio expanded further to a new record level of 30:1. Fully integrated North American PE producers are utilizing this great cost advantage to sustain a strong base of resin exports, according to TPE CEO Michael Greenberg.

Ethylene spot prices moved higher in light-volume trading, with one cracker taken offline for maintenance, but the rest of the Gulf Coast crackers up and running. Ethylene for December delivery changed hands twice, each a penny higher than the previous deal; with the most recent transaction done at $0.525/lb up $0.02/lb for the week. Ethane closed out just above $0.84/gal on Friday, a gain of nearly $0.06/gal. Relatively cheap sources of natural gas in North America, supporting strong supply chain margins, have encouraged several petrochemical producers to expand operations over the next several years, including new announcements made last week.

Polyethylene's (PE) market firmed, with tighter spot supplies and prices jumping $0.02/lb. PE production reached its lowest level since February 2009, after a fourth consecutive month of scaled-back production. This has helped producers liquidate about 500 million lb of inventory since they peaked in July. For the first time in a year, upstream PE inventories have dipped below 3 billion lb. Houston traders have also reduced warehoused positions, which bulged when the spot export market dried up during the summer. "These tighter supplies are finally providing viable support to producers' 8th monthly attempt to implement at least some of their $0.05/lb price increase in December, but demand remains an issue," noted Greenberg. "There is another $0.06/lb increase on the table for January, and we do feel that prices will be somewhat higher in January than they were in November."

Propylene monomer prices were soft in another week of relatively light trading. Spot refinery grade propylene (RGP) prices dropped another penny, falling back to $0.40/lb, the lowest price seen in 17 months. PGP did not transact in the spot market, but it was offered more than a penny lower at $0.5625/lb. Despite an early nomination to increase December PGP contracts by $0.03/lb, initial settlements have reportedly been concluded at $0.56/lb - a $0.02/lb decrease-although this is not necessarily marketwide.

Polypropylene (PP) spot prices added a penny for their first weekly gain in a month and a half, and supplies have decreased substantially while an uptick was seen in purchasing activity. November PP contracts dropped $0.06/lb, rounding out a 2-month $0.20/lb break, helping to spur processor demand to the best level since March. During November, producers restricted PP operating rates to just under 85%, and this monthly supply/demand imbalance resulted in 100 million lb of inventory depletion, dropping upstream inventories to their lowest level since April. Although December PP contracts will likely decrease another $0.02/lb commensurate to the initial PGP settlement, forward monomer prices in 2012 are at a premium to spot. "We continue to encourage resin buyers to add some PP inventory ahead of the New Year," Greenberg said, "as long as it is priced right."

Final thought from Michael Greenberg

Suppliers, both producers as well as secondary market participants, did a good job reducing inventories in November, resulting in a subtle shift in pricing power back towards the sell-side. The market is certainly not in a runaway bullish mode, but market sentiment seems to be strengthening. There are still well-priced opportunities available in the spot market, but now it takes some serious searching. December PP contracts will settle down $0.02/lb, while PE producers might finally secure at least a portion of the nickel nominated since May. If the upward momentum continues to build, we will see resin prices at least start 2012 with an uptick -it might be worthwhile to buy a few extra pounds in December.