TPE resin pricing, July 18-22: PE mixed; PP up $0.04/lb; contract prices slip, but spot material on the riseTPE resin pricing, July 18-22: PE mixed; PP up $0.04/lb; contract prices slip, but spot material on the rise

Polyethylene processors fought off a $0.05/lb price increase and instead will see average contracts marked down $0.03-$.04/lb, depending on producer and product, while July polypropylene contracts are following polymer grade propylene (PGP) $0.04/lb lower. Spot-trading platform The Plastics Exchange (TPE) said that resin markets are in flux, however, and although July contract prices are falling, spot is strong and prices have already turned back higher. Much of the discount that had been prevalent in the spot market has been eliminated, as there was a pretty good flow of material last week and despite the higher prices, a relatively high number of transactions closed.

TPE Resin Prices, July 22, 2011

Energy prices were mixed, as September crude oil futures closed in on the $100/bbl level, and the market ended the week up $2.27/bbl to $99.87/bbl. September natural gas shed $0.15/lb to settle at $4.37/mmBtu on Friday, and the crude oil : natural gas price ratio expanded back out to almost 23:1, continuing to favor North American PE producers over Europe and Asia, where naphtha and crude oil drive prices.

Ethylene spot prices rallied in more active trading, and the spot market is now well above the June net transaction price (NTP) of $0.5675/lb. July Ethylene added $0.02/lb reaching $0.615/lb, and material for August delivery changed hands at just a $0.005/lb discount. Forward months are also keeping good pace, with fourth-quarter ethylene priced just above $0.59/lb. Given the current level of July and August ethylene, TPE expects to see Ethylene's July NTP marked higher.

Polyethylene (PE) was mixed as spot and contract prices approach a convergence. Since discretionary production is currently limited by rising feedstock costs, tighter-margin commodity resins gained as much as $0.02/lb, while some of the more obscure grades that also trade in the spot market gave back some premium amid lower contract prices. Continued strength in the export market has provided a good outlet for surplus materials and lifted the floor price in Houston. PE processors successfully resisted producer's third attempt to implement the $0.05/lb price increase and instead earned another $0.03-$0.04/lb contract price decrease. Considering the sector has seen two successive months of price decreases, stronger exports (which are helping clean up the spot market) and higher spot feedstock costs, the PE market could very well have already found a bottom. If so, TPE said market participants should expect producers to make a "valiant effort" to finally implement at least some of their $0.05/lb price increase in August.

Propylene edged just a bit higher, as refinery grade propylene (RGP) traded several times with the week's final transaction done at $0.685/lb, a modest $0.0025/lb gain. Spot polymer-grade propylene (PGP) for July delivery added nearly a penny, most recently changing hands at $0.7775/lb. Spot PGP is now just $0.0025/lb below July PGP contracts, which was down $0.04/lb from June.

Polypropylene's (PP) spot market snapped back another $0.04/lb last week and now sits $0.07/lb above the low price reached at the end of June. Many processors, cognizant of the $0.04/lb decrease for July contracts, expected to see further weakness in the spot market. However, much of the well-priced spot material that was available has been sold, and the secondary market has become tightly supplied. Fresh generic prime railcar offers are priced back up into the high $0.80s/lb and relatively few offgrade cars were seen this week. Traders, uncertain as to the duration of this bounce, are not seen adding to inventories at these higher prices, rather opting for back-to-back transactions.

Final thought from Michael Greenberg

Just as July commodity resin contracts are settling down $0.03-$0.04/lb, the spot markets are accelerating their rallies. Renewed export demand coupled with rising feedstock costs has instilled a new line of seller discipline, bringing higher spot resin prices. Pricing power may very well be transitioning back into producers' hands, we will see if this trend continues. If so, it could mean an end to recent contract price relief and perhaps higher prices again in August.