Polyethylene (PE) spot prices fell and supply increased, with market sentiment shifting as spot ethylene prices exhibited weakness. Plastics spot-trading platform, The Plastics Exchange (TPE), noted that PE prices on average gave back $0.02-$0.03/lb, erasing gains made earlier in the month. Although some spot railcars have been seen offered at prices equal to late March levels, producers are still seeking to raise April contracts by $0.05/lb.
The spot ethylene market shot as high as $0.74/lb, but ethylene NTP only reached $0.555/lb for March, allowing producers to increase contract margins by as much as $0.055/lb in 2010. After taking a total of $0.18/lb of price increases during the first quarter, large PE buyers have expressed their intent to resist this proposed increase, especially given the easing in spot ethylene.
According to Michael Greenberg, TPE CEO, immediate ethylene supplies still appear tight, and while spot ethylene for April delivery has retreated somewhat, the most recent trade was still consummated at a relatively high $0.705/lb, with May ethylene transacting several times last week at $0.63/lb. Forward months are priced at a significant discount, with June nominally priced in the low $0.50s/lb, and ethylene for delivery in the second half of 2010 shown in the $0.40s/lb and even $0.30s/lb.
TPE saw a stronger flow of fresh railcars last week, which were welcomed by buyers who have drawn down inventories as they await lower prices. In addition to widespec, some generic prime offers also appeared, but not for all PE grades. Active commodity grades such as linear low-density polyethylene (LLDPE) butene and high-density polyethylene (HDPE) blowmolding were seen, but low-density polyethylene (LDPE) film and injection grades, as well as HDPE injection, remained scarce.
Houston resin exporters have been mostly shut out of the market due to high spot U.S. ethylene costs and resin prices, but not everyone has been equally affected, according to Greenberg. "Fully integrated PE producers are enjoying their low costs, which facilitate their direct exports," Greenberg said, "while keeping their operating rates elevated." Some Middle Eastern and Asian producers are offering material to the U.S., but with the domestic PE market "teetering", as Greenberg put it, traders have shunned any sizable import purchases.
Producers seem insistent on a April $0.05/lb price increase, but for TPE, it seems that the market might have stalled. "There are still a couple weeks to go [in the month]," Greenberg said, "and negotiations could heat up this week."
Polypropylene (PP) spot prices dropped $0.03/lb last week, giving back April's earlier gains. TPE noted that the resin market has begun to retreat following a sharp break in spot propylene. The exchange believes that April PP contracts will still likely increase $0.07/lb, which would be in-line with April polymer-grade propylene (PGP) contracts and well below the initial increase nominations of $0.11-$0.12/lb. PP contracts were up $0.15/lb during the first quarter of 2010.
Spot PP availability increased substantially, as several good-sized lots of widespec material were offered at prices in the mid $0.70s/lb and lower. Competitively priced prime packaged PP also came onto the market via Houston traders. Producers have yet to offer fresh generic-prime railcars to the market in any appreciable size, however. Foreign producers continue to put forward material to the U.S., with prices that had been "attractive", according to Greenberg, but they quickly became less appealing given domestic price decreases.
In spite of this recent respite, the early-year run up in PP prices has already impacted the market. "Polypropylene demand has been damaged by a series of cost-push price increases that will probably total $0.22/lb through April," Greenberg said. "While some buyers have previously stocked up in fear of yet higher future prices, most are hoping to see resin prices return back to more historically normal levels and are now looking to only buy minimal quantities as necessary."
Spot refinery grade propylene (RGP) prices cratered last week, at one point falling more than 25% from the high $0.50s/lb, before recovering a few cents to around $0.46/lb. The spot PGP market has also come undone, and was not able to find any buyers even though offers were down $0.10/lb to $0.65/lb.
TPE said that domestic distributors maintained lean inventories of PP, as prices ran into the $0.80s/lb, fearing a bubble. Now, with the local market still anemically supplied, buyers needing spot truckloads might be forced to pay a premium for a quick order, even though railcars for new shipment might be offered at lower prices. "If the monomer bubble has indeed popped and resin prices are to follow," Greenberg said, "tight producer inventories might slow the descent."
If spot weakness in propylene sustains, TPE anticipates buyers will only take on minimal contracted PP railcars while they work down inventories and await lower contract prices in May. That could cause upstream inventories to swell, and if an imbalance arises, the export market might could once again serve as an important outlet.