TPE resin prices, Sept. 3-7: PE, PP slip $0.01/lb; September contracts to rise from $0.02-$0.05/lb

Polyethylene (PE) and polypropylene (PP) prices eased a penny last week, giving back a portion of their recent gains. Trading platform The Plastics Exchange (TPE) noted that resin availability remains limited, adding that prices seem to have "gotten a bit ahead of themselves" in recent weeks, with the market needing a chance to "breathe." Hurricane Isaac did not cause any major damage to Gulf petrochemical plants, but some facilities were shut down or run at reduced rates as a precaution, further compromising already tight supplies. August PE contracts were up to $0.03 - $0.05/lb, September will likely see them all balance, rising $0.05/lb. PP contracts shed $0.015/lb in August and will see a $0.025-$0.04/lb rebound in September.

Energy markets moved lower last week, with gas dropping more than oil. October crude oil futures slid just $0.05/bbl in another week of reduced volatility, and the market settled Friday at $96.42/bbl. October natural gas closed at $2.682/mmBtu, for a loss of $0.117/mmBtu, dropping to the lowest weekly settlement since June. The crude oil : natural gas ratio moved out to 36:1; pushing it back to six times the 6:1 level considered parity.

Ethylene spot trading was active and most crackers returned to normal production following hurricane-related disruptions. The spot market was weak through last Wednesday, trading down a couple cents to $0.595/lb, but recovered and erased the losses by Friday. The forward curve steepened somewhat as future months eased a bit. Prompt ethylene is now priced about $0.05/lb above material for delivery in December and a full $0.10/lb higher than ethylene 12 months out. Ethane prices dropped $0.015/gal to $0.325/gal ($0.1375/lb).

Polyethylene (PE) prices gave back the penny picked up in the previous week. The spot market has rallied consistently since bottoming out at the end of June and developed a premium to contract prices. The market's back-peddling this past week reflects the likelihood that, despite price increase nominations for September, contracts will mostly wind up steady, according to TPE CEO Michael Greenberg. "While the vast majority of processors took a $0.05/lb increase in August, some only incurred a $0.03/lb hike, but they will now go up an additional $0.02/lb bringing the entire industry on par up the nickel for their September purchases," Greenberg said. TPE noted that spot material in general is still hard to source and well-priced domestic offers are moving fairly quickly. The export market, however, has slowed based on limited availability and higher prices.

Propylene's spot market advanced, trading up to $0.5375/lb, about $0.02/lb higher than it was bid last Friday and several cents above the previous transaction, which occurred a couple weeks ago. Spot polymer grade propylene PGP now sits more than $0.03/lb higher than August contracts, which were priced at $0.505/lb. Based on current levels, September PGP contracts could settle near the high end of the increase nominations, which range from $0.025 -$0.04/lb. For the past couple of months, spot refinery grade propylene (RGP) has been stuck in the mid-upper $0.30s/lb.

Polypropylene (PP) eased a penny and will pretty much be on par with contracts when the September increase is determined, after it had rallied several cents the past few weeks. Nominations are mostly equal to the change in PGP monomer, which is nominated as much as $0.04/lb higher, with at least one producer seeking a penny margin expansion. Upstream resin inventories remain tight and material in the reseller market has dwindled. Well-priced offgrade cars are selling fairly quickly and the market is still "starved" of Generic Prime, according to TPE. The single hurricane related Force Majeure remains intact, but production was gearing up again. Higher prices are challenging exports, even to traditional Latin American markets.

Final thought from Michael Greenberg

Although resin supplies are limited, the spot market advanced too quickly over the past several weeks, pricing deals beyond the interest of some buyers. The market eased a penny this past week as processors turned back to the contract market to satisfy their needs. Polyethylene contracts should even out up $0.05/lb between Aug/Sept; processors that buy direct and forecasted their demand early should find ample supply. Polypropylene buyers will pay up $0.03-$0.04/lb for prime railcar purchases in September; truckload buyers will still pay a premium as reseller inventories have been reduced.