. Spot prices for both polyethylene and polypropylene rose amid a spate of cracker outages triggering Force Majeure declarations for both ethylene and polyethylene from certain plants. Although resin offers began to flow nicely early in the week, some were taken off the table while others remained available but at higher asking prices. Logistics complications continue and processors have been seeking spot material to keep plants in resin.
Energy market volatility was heightened and both major products moved notably lower, bucking geopolitical tensions and instead responding to growing domestic supplies. August Crude Oil futures dropped a sharp $3.23/bbl to settle Friday at $100.44/bbl, more than $7/bbl below the peak seen in late June. Natural Gas continued to unravel, the August contract eroded another $.26/mmBtu, to end the week at $4.146/mmBtu; 15% lower than month ago levels. The Crude Oil : Natural Gas ratio expanded slightly to 24.2:1. NGLs were weaker, no doubt affected by lower energy prices and cracker outages. Spot Ethane shed $.015/gal to $.2575/gal ($.108/lb). Propane prices continued lower but rebounded about a penny off the week's lows to close at $1.0325/gal ($.292/lb).
Spot ethylene buying was voracious with nearly 100 transactions tallied during the week. Activity was driven by outages at crackers operated by CPChem and Equistar; the latter declared Force Majeure at their La Porte facility. Ethylene for July delivery quickly rose above $.56/lb on Monday and soared from there, transacting at many different prices before finally ending the week at $.63/lb, a huge $.075/lb gain. Spot ethylene changed hands into the $.70s/lb in South TX. There were plenty of trades in the forward months and the curve, which had finally flattened, regained a steep backwardated shape. Dec 2014 is again priced $.03/lb below prompt and the discount reaches $.07/lb by Dec 2015.
Spot polyethylene trading volumes improved and prices jumped $.01-.02/lb depending on grade. Feedstock disruptions led to Equistar's Force Majeure declaration for polyethylene produced at their Matagorda and Victoria plants; there was talk late in the week that other announcements could be forthcoming from other producers with plants in South Texas.
Spot HDPE resins were mostly $.02/lb higher; LDPE and LLDPE film grades added another cent. Initial reports show that in June, domestic PE demand was 2.63 billion lbs, about the same as May and 70 million more than the trailing 12 month average. After doue months of slack shipments, exports popped to 656 million lbs, about 120 million more than May and 40 million above the 12 month average. Production issues limited reactor rates to 91.5% so producers pulled 125 million lbs of PE from their inventories to meet demand. July began with 3.3 billion lbs of polyethylene on hand, a shade below the trailing 12 month average.
The propylene markets were a bit busier and prices moved higher, but much less dramatically than Ethylene. There were two propylene production issues which should serve to tighten supply. July PGP transacted several times at consistently rising prices, most recently changing hands at $.665/lb. It was enough to recoup the previous week's halfcent loss, plus add another penny. The forward curve steepened slightly bringing the current market about $.01/lb above Dec 2014. Spot PGP prices have bounced $.035/lb from the season's lows, eliminating the call for another contract decrease. July PGP contracts have now rolled flat at $.675/lb and while early, are starting to point higher for Aug. The spot PGP-RGP spread is now priced around a dime.
Spot polypropylene activity picked up and prices jumped $.02/lb; spot supplies are tight and further supply concerns are developing. Most PP contracts should still follow PGP flat in July, although some producers are renewing efforts to expand margins. For instance, in July Total is seeking a $.04/lb increase above the change in PGP monomer contracts, and for August LyondellBasell has followed with a $.02/lb increase beyond the change in monomer. Initial reports indicate that in June, domestic PP demand was 1.372 billion lbs, a tad below May's figure, but nearly 50 million lbs above the trailing 12 month average. PP exports were 46 million lbs, the most since March and right at the trailing 12 month average. Polypropylene producers ran reactors at 89.3%, which was also about average. Producers collectively liquidated 35 million lbs of resin to meet demand, so inventories entered July at 1.5 billion lbs, also spot on the trailing 12 month average.
Final thought from The Plastics Exchange CEO Michael Greenberg:
Spot resin trading was swift and pushed prices higher; PE by $.01-.02/lb, and PP by a full $.02/lb. The markets had already been changing direction over the past few weeks and the current monomer disruptions could work downstream to further tighten resin supplies and potentially add further fuel to this burgeoning rally. July resin contracts could still roll flat across the board, but we see a strengthening potential for a rise in contract prices come August.