Overview: Spot resin trading continued to run at a "fast clip" last week, according to trading platform, The Plastics Exchange (TPE), with high volumes and sustained pricing strength. When polypropylene (PP) started showing strength in mid-June and polyethylene (PE) regained its footing in late July, it seems to have caught processors that expected continued declines off guard and now many are scrambling to fill holes in their inventory. TPE CEO Michael Greenberg noted that prime spot activity is now mostly limited to the domestic market, since higher Houston prices have begun to stymie exports.
Energy markets moved in opposite directions once again, with September crude oil futures climbing back above $80/bbl, as they added $1.75/bbl to end the week at $80.70/bbl. September natural gas futures gave back the previous week's gains and more, as the market fell $0.456/mmBtu, almost 10%, to close at $4.467/mmBtu on Friday. The crude-oil:natural-gas price ratio expanded back to more than 18:1, the widest gap in three months.
Ethylene spot prices eased a tad after jumping about 10% in the previous week, slipping just a half-cent to last transact at $0.365/lb in relatively "lackluster" trade, according to Greenberg. A month ago, spot ethylene traded a shade below $0.30/lb. The overall ethylene market remains backwardated, so that front end of the curve is trading higher than forward months. Ethylene for prompt delivery still commands a premium of nearly $0.05/lb over material for 4th quarter 2010 delivery, which is priced around $0.32/lb.
Polyethylene (PE) spot prices edged a bit higher last week, adding between $0.005-$0.02/lb, depending on grade. After four straight months of losses, the market found strength when producers nominated a $0.05/lb price increase for September contracts. Those processors that buy predominately in the spot market are feeling the price pinch and have been good buyers, but those that procure on contract will not see the increase until next month and are currently shying away from spot offers.
High-density (HDPE) blowmolding prices, which had been the weakest of the group, picked up another half-cent this past week, and now sit about $0.03/lb above the lows made in July. The HDPE injection and linear low-density (LLDPE) film-grade markets have seen similar activity, while Greenberg said, low-density (LDPE) is currently "in its own world." "Three months of sharply reduced operating rates, averaging in the low/mid-80s% due to production issues, have crimped LDPE supplies," Greenberg said, "which has sent prices soaring. There is currently little LDPE, particularly high clarity, available at any reasonable cost."
Propylene spot activity has quieted, with only a couple transactions concluded. Refinery grade propylene (RGP) prices added another $0.005/lb this week to last trade at $0.445/lb, after the chemical traded as low as $0.38/lb in early June. There were no spot polymer-grade propylene (PGP) trades seen last week, but after two months of steady prices, August contract settlements were affirmed market-wide at $0.575/lb, an increase of $0.02/lb.
Polypropylene (PP) spot prices were steady this week, consolidating after a $0.09/lb, two-month rally. As Greenberg observed:
"It is widely acknowledged that the price pendulum swung too low during the second quarter of 2010 and that much of this recovery was simply the spot market re-aligning to the contract price."
As a result, months of reduced production rates have helped producers better manage their inventories, with current levels just over a 30-day supply. The balance between supply and demand is now tipped in favor of producers, which has given them confidence for a renewed effort to expand contract margins.
August price increase nominations have generally been issued at either $0.04/lb or $0.02/lb above the change in August PGP contracts. Margin expansion has been unsuccessfully attempted before, but in this case the numbers all equal the same $0.04/lb, although Greenberg said there is also a lone nickel increase out there.
"Given current market dynamics, it is possible to get the extra $0.02/lb, but there just might be too many fixed "monomer-plus" deals written to affect the overall average contract price. After years of tight margins, time will tell if the major indices will afford the PP producers their well-needed bonus in August."
Saying that there is an "interesting market at hand", Greenberg concluded that, "Overall, bridled bullish sentiment remains as we embark on another week." —[email protected]