TPE resin prices, Jan. 23-27: PE steady to up $0.02/lb; PP rises $0.03/lb; ‘Hold on to your hats’

The prospect of higher prices in February had buyers seeking end-of-the-month resin-buying opportunities, pushing the spot-resin market into swift trading at the end of January, according to The Plastics Exchange (TPE). Average spot polyethylene (PE) prices were steady to $0.02/lb higher, while polypropylene (PP) jumped $0.03/lb last week amid limited material availability and soaring feedstock costs. Producers are resolved to implement the current $0.06/lb increase for January PE contracts, according to TPE, having already invoiced for the month, but popular consultancies have called the market steady to jsut $0.03/lb higher. Spot generic prime PE railcars are still available in the secondary market at $0.03 - $0.06/lb higher. PP contracts rolled flat in January but are poised to rise significantly in February on rising feedstocks and producer desire to expand margins.

TPE Resin Prices Jan. 27, 2012

Energy markets moved higher, more than reversing the previous week's losses, as March crude oil futures climbed $1.23/bbl to finish at $99.56/bbl. Natural gas futures finally snapped back, ending what TPE called a "relative free-fall" wherein prices plummeted to circa 2002 levels. The March futures contract recovered $0.364/mmBtu, some 15%, to settle at $2.756/mmBtu on Friday. The crude oil : natural gas price ratio contracted from the recent record level of 41:1, back down to 36:1, which is still six times the 6:1 ratio that is generally considered parity.

Ethylene extended its winning streak to 6 weeks, rising further in moderate trading. The spot market took a step backwards to $0.59/lb in the beginning of the week, but then surged several cents to make a new high for the move. Ethylene for January delivery last traded in the active Williams facility at $0.63/lb on Friday, a penny premium over material for February delivery. Forward months are priced at increasing discounts;  ethylene for the delivery over the entire second half of 2012 was priced at $0.55/lb. Ethane shed a couple more cents to $0.585/gal, and TPE noted that ethane-to-ethylene margins are "simply staggering."

Polyethylene's (PE) spot market remains supported by relatively tight upstream inventories and rising spot monomer costs. Spot PE prices were steady to higher depending on material, and film grades were the strongest, particularly low-density polyethylene (LDPE), which is suffering from production issues. High-density polyethylene (HDPE) supplies remain adequate, although in many cases, these prices have also ticked higher. The status of the January price increase remains unsettled, as producers and processors continue to spar. Producers are intent to maintain the $0.06/lb increase that they have billed for January contracts. Buyers however, see spot sales at prices less than the current increase, and consultancies and notable market observers have indicated the market steady to only $0.03/lb higher. "One thing is for certain, if producers do not get their increase in January," Greenberg noted, "they will go for it again in February."

Propylene was active again and prices charged higher, with refinery grade propylene (RGP) trading as high as $0.64/lb, a level $0.26/lb above the December trough price of $0.38/lb. Polymer-grade propylene (PGP) for January delivery transacted a number of times, reaching $0.655/lb, nearly a dime above January PGP contracts. PGP for February delivery went on to trade once at $0.705/lb. Financially settled transactions for the second quarter of 2012 were priced just above and below this level. A producer has nominated to increase February PGP contracts by what TPE called a "whopping" $0.22/lb; and while the spot market has rallied, $0.78/lb for contract PGP currently seems out of line.

Polypropylene (PP) continued to rally, adding another $0.03/lb, pushing prices up about a nickel during January. This is significant price movement considering that PP contracts were steady in both January and December, according to TPE. The current deviation is based on tight inventories from end-of-the-year de-stocking along with tempered resin production, which created an under-supplied environment. More recently, the rapid-run up in spot-monomer costs has impacted the market. Spot monomer for January is now nearly $0.10/lb above contracts, and February PGP traded even a nickel above that, but on low volume. The upward momentum was enough to spur one producer to seek a huge $0.22/lb price increase for February PP contracts. "Some buyers have reacted with disbelief, some with anger, while others are just trying to buy up as much well-priced spot material as possible," Greenberg said. TPE noted that it has had some difficulty moving material in the low $0.70s/lb, so asking prices in the high $0.80s/lb at the start of February seem "unrealistic."

Final thought from Michael Greenberg

The resin market's bullish momentum has taken hold. Suppliers are trumpeting higher resin prices and are pointing to their rising costs. PE buyers eagerly retort that margin is already plentiful between ethane and ethylene. PP buyers might recognize that low volume trades are pushing the spot PGP market higher and might not necessarily reflect the entire market. Either way, we expect to see sharply higher asking prices in early February. PE producers will seek any part of the $0.06/lb increase that might not take hold in January, plus an extra $0.04/lb for LDPE. PP producers will be looking for a double-digit increase, but it will likely fall short of the $0.22/lb that has just been nominated. Hold on to your hats, this ride could get a bit bumpy.