TPE resin prices, Feb. 6-10: PE up $0.01/lb; PP up $0.02/lb; Price increases drive down exports

Spot resin trading activity improved and offering volumes increased, although at higher prices in last week's resin market according to spot-trading platform The Plastics Exchange (TPE). TPE noted that a larger percentage of opportunities were completed as buyers came to terms with elevated resin costs. Continued strength in monomer costs is also supporting the market, helping allow polyethylene (PE) producers renew their effort to implement a $0.06/lb increase that did take hold in January. February polypropylene (PP) contracts are jumping $0.165/lb along with the recent PGP contract settlement.

TPE resin prices, Feb. 10, 2012

Energy markets traded in opposite directions, with March crude oil futures adding $0.83/bbl this week to settle at $98.67/bbl on Friday. Natural gas futures volatility decreased, as prices edged just $0.022/mmBtu lower to finish at $2.477/mmBtu. The crude oil : natural gas price ratio pushed out to nearly 40:1, maintaining what TPE CEO Michael Greenberg called the massive cost advantage that integrated North American PE producers have versus their international counterparts, who mostly derive their feedstocks from the crude oil chain.

Ethylene prices started lower but then traded higher, recording a gain for the eighth straight week. An unexpected cracker outage compounded already tight spot supplies resulting from a series of planned turnarounds. Ethylene for February delivery added about $0.025/lb to last trade at $0.675/lb. March Material is priced at or slightly above February, indicating that higher spot costs could last a while longer. Ethylene for delivery during the second quarter is priced at a couple cents discount, and the forward market is finally priced back into the high $0.50s/lb by the third quarter when all the scheduled cracker maintenance will be completed. In the meantime, with ethane sliding another few cents to the mid $0.40s/gal, all those ethane crackers up and running are making tremendous margins in the production of Ethylene.

Polyethylene's (PE) market ticked a penny higher, despite no shortage of spot resin, as producers again pursued a $0.06/lb price increase, this time for February contracts. Initial reports indicate that PE demand, both domestic and export, was off sharply in January, causing upstream inventories to swell about 300 million lb to nearly 3 billion on hand to begin February. In retrospect, processors did well in December even considering the nickel increase, as they added to inventories which helped them resist the January price increase by limiting contract purchases. "After a rocking December," Greenberg said, "exports fell off to just 561 million lb, the lowest level since April 2010." While spot PE railcars are generally priced to reflect the current price increase, there is an abundance of material packaged and available in Houston, although those prices have also been floating higher.

Propylene's spot market has stabilized after spiking higher in January. Limited amounts of propylene have been produced as crackers opt to utilize lower priced ethane versus propane as a feedstock. Several cracker outages then exacerbated the supply situation. Polymer grade propylene (PGP) producers negotiated a $0.165/lb price increase for February contracts, however, noted Greenberg, "Once we reached this level, ample supplies of monomer became available in the spot market." The forward market for PGP over the balance of 2012 is currently fairly flat. Refinery grade propylene (RGP) has been steady for the past couple weeks, priced on the lower side of the mid-$0.60s/lb and again did not appear to transact.

Polypropylene (PP) spot prices continued higher, adding another $0.02/lb. After four weeks of steady gains, spot prices are nearly to the level of average resin contracts, which are jumping a "whopping" $0.165/lb in February. "About a nickel less than initially nominated, but still - yikes!!," Greenberg exclaimed. Back in November/December much of the market was talking about higher PP prices forecast for the first quarter of 2012. Buyers wisely prepared themselves, taking advantage of 2 months of flat prices as they purchased more 100 million lb more than the trailing 12 month average in each of December and January. Monomer costs and PP prices are currently indicated about flat for March, which could give processors the opportunity to pass their higher costs downstream.

Final thought from Michael Greenberg

Fully integrated PE producers can still export at will given the massive margins lurking upstream. However, the run-up in domestic monomer costs and resin prices are challenging spot exports as U.S. resin prices sprint ahead of key international markets. Houston warehouses are bulging with material and spot resin markets have provided processors the venue to source surplus material to create a temporary buffer against contract price increases. PE buyers, who bought heavily in December withheld orders in January, helping to disable that price increase. PP processors are also well stocked and will ease into the $0.165/lb price spike in February, by running lower cost old material with current purchases made at a higher cost. We expect these higher resin prices to stick around for a while, but foresee good relief potentially developing some months away.