TPE resin prices, Jan. 16-20: PE up $0.01/lb; PP up $0.02/lb; First market trend of 2012: rising resin prices

Prices rose as a light-to-steady flow of spot material was offered last week, according to plastics spot-trading platform, The Plastics Exchange (TPE). Resin market activity was about average, according to TPE, and traders with old inventory on hand began asking more for their material, as buyers started coming to grips with the new reality of higher prices, after months of steady to lower markets. Producers have been invoicing January polyethylene (PE) contract sales up $0.06/lb, looking to build on the successful December implementation of their $0.05/lb increase. Spot PE railcars are generally available up the full $0.06/lb and some spot deals are happening somewhere in between. January polypropylene (PP) contracts have rolled steady, but the spot market continues to make gains amid tight supplies and rising monomer costs.

Energy markets were lower and front month contracts began to roll. March crude oil futures spent most of the week above $100/bbl, but fell on Friday to end the week at $98.33/bbl, for a net loss of $0.55/bbl. March natural gas futures continued to erode, erasing another $0.321/mmBtu, about 12%, to end the week at $2.392/mmBtu-a price not seen in a decade noted TPE. The crude oil : natural gas price ratio soared to a new record level above 41:1, nearly seven times the 6:1 ratio that is generally considered parity.

Ethylene spot prices continued their winning ways, up again for the fifth week in a row, recording another $0.015/lb gain. The market traded several times with the final transaction on Friday done at $0.605/lb, but that was still shy of the previous week's high of $0.6175/lb. TPE noted that a couple steam crackers are offline for scheduled maintenance, tightening availability. Ethane prices dropped more than 10% this past week to $0.605/gallon, contributing to extremely wide margins for the production of ethylene.

Polyethylene (PE) spot prices continued to rally adding another $0.01/lb and have now scored gains in each of the first three weeks of 2012, climbing a total of $0.06/lb. After finally securing the nickel increase in December, PE producers are now working to implement a $0.06/lb increase, citing strong spot ethylene prices. That said, one cannot ignore the substantial margins enjoyed by integrated producers further upstream in ethane to ethylene production and also back to natural gas which just reached a 10-year low, noted TPE CEO Michael Greenberg. "It is this very cost advantage compared to other international PE producers, who derive most of their ethylene from the crude oil chain, which has also facilitated a strong base of North American PE exports," Greenberg said, noting that exports topped 800 million lb in December, accounting for about 24% of total sales.

Propylene's spot market has snapped back to life, trading well off the bottom reached in December. Refinery grade propylene (RGP) traded into the $0.50s/lb early in the week and was subsequently bid into the mid $0.50s/lb, more than 40% above the December low. Polymer grade propylene (PGP) transacted several times in the spot market reaching all the way to $0.6225/lb, up almost $0.10/lb in the past three weeks. Recent activity has shrunk the RGP-PGP spread considerably. January PGP contracts rolled steady at $0.56/lb, but are poised to move higher in February based on the spot market. Contrary to ethylene, the forward curve for propylene is upward sloping with prices currently forecasted by traders to rise further throughout 2012.

Polypropylene (PP) spot prices are on the move, adding another $0.02/lb this week based on limited supplies and rising spot costs. A relatively light flow of offgrade railcars came through the market, but many of the cars were sold by week's end as buyers, anticipating higher prices in February, began to scoop up well-priced material. Distributor inventories are light and many PP grades are becoming difficult to source. Houston traders that had been stuck with unsold resin due to sluggish exports saw an uptick in demand and raised their asking prices for their remaining lots, according to TPE. PP producers have only managed minimal margins the past few years and are again looking to increase resin prices in February more than the actual change in PGP monomer contracts.

Final thought from Michael Greenberg

The resin markets have established their first trend of 2012, and it is for rising prices. Many market participants along the resin supply chain reduced inventory into year-end and buyers are at times now scrambling to restock. Well-priced resin offers have been drying up as buyers grab that which has been available. There is still resin to be found, but at higher prices, the current availability does not seem quite as attractive. Although some buyers are already complaining about price, as we start looking into February there appears to be more room to the upside.