Processors sought sharper decreases than the $0.04/lb most recently offered for May polyethylene (PE) contracts, and although one producer dropped May PE contracts by $0.07/lb, this has yet to be seen industry-wide. Polypropylene (PP) contracts settled down $0.10/lb earlier in the month, according to spot trading platform, The Plastics Exchange (TPE), while spot markets for both materials have since traded well below these levels. Spot plastics trading activity was average last week, as volumes were softer and most commodity grade resins were priced marginally lower. TPE CEO Michael Greenberg noted that thoughts of still falling prices have left processors thinking in terms of de-stocking and minimizing purchases, which is contributing to growing upstream inventories.
Energy markets moved lower last week, as July crude oil futures fell for the fourth week in a row shedding $0.94/bbl to settle at $90.86/bbl on Friday, the lowest level in more than 6 months. July natural gas gave back much of the previous week's gains, sliding $0.233/mmBtu to end at $2.672/mmBtu. The crude oil : natural gas price ratio expanded to 34.5:1, although the spread has come in from its April record of 52:1. In spite of that, it is currently nearly six times the 6:1 ratio considered parity.
Ethylene's spot market stabilized and prices rebounded slightly when overall supplies improved as cracker maintenance wound down. May Ethylene traded at $0.53/lb, up more than a penny. It was then bid to nearly $0.54/lb by week's end, and June ethylene last changed hands at $0.525/lb. Although ethylene prices have dropped dramatically from the season high of $0.75/lb, ethane prices have also fallen, last finishing around $0.39/lb ($0.165/lb), so that ethylene margins remain excellent.
Polyethylene (PE) spot prices were about a half-cent lower on average, with some movement between grades. May contracts are widely offered $0.04/lb lower, with one producer matching a major index's suggestion of a $0.07/lb decrease. Resellers are generally looking to sell uncommitted material outright and are not ready to re-stock, even at relative bargain prices. The export market is very difficult, according to TPE, with April sales coming in at less than 500 million lb, which is their worst performance since November 2008. Greenberg noted that, not only does the arbitrage not work to Asia, but that continent's material is actually being offered into South America, further complicating typical North American export sales.
Propylene's spot market continued to firm, slowly recovering from the steep declines seen earlier in the month, when some crackers increased their use of propane as a feedstock thus producing more propylene. Prices have inched back into the mid $0.50s/lb, with the most recent spot transaction seen at $0.555/lb, which is a far cry from the $0.675/lb for May polymer grade propylene (PGP) contracts. June PGP has been initially nominated to decrease $0.08/lb, which would equate to $0.595/lb, a more modest of a decline than some had anticipated. Refinery grade propylene (RGP) is priced in the mid $0.40s/lb, providing strong splitter margins.
Polypropylene (PP) prices were pressured down another penny as market participants look ahead to June and imminently lower contracts. Domestic purchasing continues to be sluggish while processors wind down inventories built earlier this year. Many processors also ran their contract orders at a minimum during May, opting to buy lower priced material that has been available in the spot market. PGP and resin contracts have been nominated to ease another $0.08/lb in June, but TPE speculated that perhaps the decrease would ultimately be a bit larger. "When this occurs, and the better part of $0.20/lb has been relieved from the market, we expect to see an up-tick in demand as processors will also need to re-stock," Greenberg said. At present, supplies are more than ample, upstream inventories are the highest since last October, and export sales are the lowest in more than 6 years, according to TPE. ,
Final thought from Michael Greenberg
Commodity resin prices are grinding lower as the month draws towards a close. May PE contracts are not fully settled, but decreases of $0.04/lb or $0.07/lb have been offered depending on producer, further declines are anticipated for June. May PP contracts were marked down $0.10/lb, and a similar break is expected for next month. This next round of relief should rejuvenate domestic demand, as downstream inventories are getting fairly thin. Exports are a different story, negative sentiment and competitive offers from the Middle East and other Asian traders have shut down the high volume trade, which does not appear ready to resurface. This will make it challenging to clear the surplus resin hanging over the market. One can easily argue the sense to cut resin reactor rates; however, cracker margins are so profitable and all that monomer still needs to go somewhere.