TPE resin pricing, Jan. 7-11: PP up $0.07/lb; PE up $0.02/lb; PP rally is not over

Polypropylene and polyethylene traded higher last week, with PP gaining a full $0.07/lb in an extremely active market, while PE rose as well, adding $0.02/lb. Resin trading platform The Plastics Exchange confirmed dozens of transactions, particularly in PP, where rapidly rising feedstock costs could push January contracts up by as much as $0.15/lb. Overall export interest was muted by the rising prices, with "quite a bit of material" destined to ship overseas redirected to the domestic market, according to TPE CEO Michael Greenberg.

TPE resin prices, Jan. 11, 2013

Energy prices rose modestly, with February crude oil futures adding another $0.47/bbl last week to settle at $93.56/bbl. Prices have moved consistently higher since the mid-December cycle low near $86/bbl. February natural gas fell below $3.09/mmBtu on Wednesday, $1/mmBtu off its late November highs, before rebounding to close the week at $3.327/mmBtu for a net gain of $0.04/mmBtu. The crude oil: natural gas ratio remained just above 28:1.

Ethylene spot prices ran higher in another very active week of trading, as prompt material reached $0.65/lb before easing back fractionally last Friday. The market was up more than $0.04/lb. Numerous transactions were seen for delivery throughout 2013, and the forward curve maintained its backwardated shape. In forward months, prices ease gently during the first half of the year and then drop off more sharply during the second half. Eventually, they are priced around $0.55/lb for December 2013. A couple of crackers began scheduled maintenance last week including one looking to expand monomer production upon its return. Plentiful NGLs have kept ethane prices depressed around $0.22/gal ($0.093/lb) yielding "phenomenal" ethylene monomer margins, according to Greenberg.

Polyethylene offers began to flow, rising $0.05/lb to reflect January price increase initiatives. "Processors were not eager to jump at the offers, claiming slow business to begin the year and ample inventories from hefty November/December purchases," Greenberg said. However, as spot monomer costs surge, producers were not willing to budge on price and maintained their intent to implement the nickel increase. Most producers have backed the effort with a fresh $0.04/lb nomination for February. Aside from rising costs due to constrained monomer supplies forecast over the next few months, producers have other fundamentals on their side: strong December exports of 822 million lb, the highest since December 2009, combined with better than average domestic sales of 2.55 billion lb. These helped reduce year-end inventories 100 million lb, getting them back to the 2012 average of 3 billion lb.

Propylene's spot market continued to rally, adding to gains with every new trade. By the end of the week, polymer grade propylene (PGP) for January delivery hit $0.72/lb, up another $0.04/lb. These conditions sent spot $0.14/lb above December contracts and encouraged producers to re-nominate their January price increase from $0.115/lb up to $0.15/lb. Last week's gains accelerated in the front months, steepening the backwardation of the forward curve to a $0.04/lb discount by December 2013. Refinery Grade Propylene (RGP) saw similar gains, ending the week at $0.675/lb.

Polypropylene (PP) trading had "a wild week", according to Greenberg, with some traders caught short of supply and forced to scoop up all well-priced resin made available. By the end of the week Generic Prime PP rallied $0.07/lb. "The run-up in PP prices made windfall profits for other traders that just 2-3 weeks ago were unable to sell their material a dime cheaper," Greenberg said. Thus far, distributors are having a difficult time selling Prime material, with prices there often pegged to contract monomer, which remain quite volatile. Greenberg said, consequently, it is hard to gauge the ultimate cost of material at the time of sale. PP producers are generally looking to raise January contract prices by the change in PGP monomer contracts, now nominated up $0.15/lb. One producer is seeking a total of $0.185/lb. Producer PP inventories ended the year below 1.4 billion lb, the lightest since TPE began keeping these records in 2006. "We have been bullish PP since November and have advised the procurement of additional resin into the first quarter," Greenberg said. "This rally is not over."

Final thought from Michael Greenberg

Spot resin markets were very busy and prices shot higher, polypropylene more than polyethylene. With few fresh railcars offerings the first weeks of 2013, buyers, sensing a higher market still ahead, have been out procuring already warehoused resin. Limited supplies and rising monomer costs lend strong support to producers' January price increase nominations. While the polyethylene market has recently not nearly shown the strength of polypropylene, its $0.05/lb increase seems benign to the $0.15/lb currently on the table for PP. We still foresee market strength continuing throughout the first quarter. Exports to Latin American markets remain interesting, but U.S. asking prices are beyond the reach of the Indian and Asian markets, and some of their resin is now competitively offered into the U.S. market.