Polyethylene (PE) trading was slow the first full week of April, with spot prices stalling after quickly moving $0.01/lb higher last Monday. Spot-trading platform The Plastics Exchange (TPE) said the slight strength reflects a chance that PE producers could successfully push through another price increase for April contracts, which would be the fourth this year. PE contracts are already up $0.18/lb in 2010, outpacing ethylene's gains by $0.055/lb for a sizable contract-to-contract margin gain.
As ethylene surged last month, PE producers nominated a $0.05/lb price increase for April. TPE CEO Michael Greenberg noted that the vast majority of ethylene used to make PE has a much lower cost than the more broadly advertised ethylene price. That's especially true for PE producers that are fully integrated back to the natural gas wellhead. Greenberg noted that those companies, with gas at $4/million Btu, are enjoying "phenomenal margins" at present.
That ethylene is advantaged enough that Greenberg said since spot PE prices are generally in the high $0.60s to low $0.70s/lb, it might be understandable for a PE producer to actually sell their extra ethylene into the spot market rather than produce surplus resin. "At times this seems to be the case and would contribute to the thin spot resin supply seen," Greenberg said.
TPE has said that the high U.S. prices have garnered the attention of producers in Middle East and Asia, regions with new capacity, although most U.S. traders and processors have shied away from such purchases given the lead time and, to a lesser extent, unfamiliarity with these new sources.
Whatever transpires, April will be a decisive month for PE, according to Greenberg. "Processors are getting frustrated with the increases and some are intent to work off remaining inventories before committing to another nickel increase," Greenberg said. "In the meantime, there is not a lot of resin around."
Polypropylene (PP) spot prices added another $0.01/lb, building on the $0.03/lb gain tacked on in the previous week. PP contract prices have been locked in step with polymer-grade propylene (PGP) contracts, which are facing a nominated increase of $0.11/lb in April. PP prices added a total of $0.15/lb in the first quarter, and as the second quarter started, PP buyers were facing the steepest increase of the year in April.
Ultimately, TPE says a slightly softer spot-monomer market helped propylene buyers negotiate a somewhat relaxed increase, although April PGP contracts still settled a $0.07/lb higher at $0.755/lb.
With the April increase priced into new contract purchases, PP prices, somewhat counter intuitively, are nearing the all-time highs seen in the aftermath of the 2008 hurricanes, when the industry faced widespread force majeure conditions. "This time around feels very different, as consumer demand is still suffering while the economy tries to recover," Greenberg said. "As such, many processors have had difficulty passing their rising resin costs downstream to their customers; some have faced reduced sales while others have lost product lines altogether."
Railcar offers for generic-prime PP remain scarce, but the resin could be made available in the mid-to-high $0.80s/lb. There has been a strong flow of widespec PP railcars, but even there, material priced in the $0.70s/lb is becoming difficult to find. April PGP contracts settled $0.07/lb higher, which was ultimately $0.04/lb less than initially nominated. Greenberg noted that what might seem like a small win, actually translates to the largest PP increase for the year, with some PP producers seeking as much as an $0.11/lb to $0.12/lb increase. TPE warns that PP buyers should expect April contracts to rise by a minimum $0.07/lb. —[email protected]