Polyethylene (PE) spot prices jumped about $0.04/lb last week, driven by soaring monomer costs and pointing to higher contract resin prices in February. Michael Greenberg, CEO of spot-trading platform The Plastics Exchange (TPE), notes that just as the cooling export market left the spotlight, monomer outages and runaway ethylene prices that resulted grabbed the market's attention. At the start of January, PE producers pushed increases as high as $0.08/lb, and the spot market quickly jumped $0.04/lb but then stalled. As the month wore on, it became apparent that only half of the proposed increase would stick in the contract market, with additional increases pushed off until February. Towards the end of the January, however, spiking ethylene drove the resin market higher and, by the end of month, spot PE prices had actually increased $0.08/lb.
Ethylene shortages have been caused by a series of planned and unplanned outages that have left the industry short in the near-term. Tightness in that market drove prices up $0.06-$0.07/lb so they ended the week at $0.51-$0.52/lb. While it appears that the immediate need remains, the monomer market is expected to ease considerably going forward. To wit, ethylene monomer for March delivery traded last week at $0.475/lb, with second quarter prices currently in the low $0.40s/lb, continuing down into the mid $0.30s/lb by the fourth quarter.
Greenberg explains that this dynamic—lower forward prices—is atypical. "A normal market, with balanced supply and demand, would be priced such that the carrying costs of the commodity, including storage and interest charges, are added to each future month," Greenberg says. In contrast in the current market, a short-term shortage has caused the spot market to jump with the back months discounted, as it is believed that the problem will resolve in the future.
As February begins, producers are firmly quoting material $0.08/lb up from January contract levels, by consolidating the outstanding increases from December ($0.03/lb) and January ($0.05/lb). At this point it's too early to say where the contracts will settle for the current month, but at the start of February, the market is already up $0.04/lb-with very little material offered. Spot supplies of low-density polyethylene (LDPE) and linear low-density polyethylene (LLDPE) for films, as well as high-density polyethylene (HDPE) for all processes, remain scarce. "For now, the spot PE market is strong and February contract prices are poised to move higher," Greenberg says.
The export market has quieted down as Asian traders take a break ahead of the Chinese New Year. However, Greenberg says barring unforeseen circumstances, it is anticipated that PE exports will once again post figures similar to the record volumes seen over the past couple months.
Polypropylene (PP) spot prices continued moving upward, climbing another $0.02/lb last week. With monomer costs still rallying, and producers fairly certain that resin contracts would increase again in February, there were few fresh PP offers shown to the market. Resin that was made available was quickly sold as savvy buyers sought to get ahead of the next price hike.
PP producers successfully passed along a $0.03/lb increase to resin contracts, reflecting the increase they incurred for polymer-grade propylene (PGP) monomer in January. However, in a rare occurrence, the spot market actually outpaced the contract market, not only taking up the slack encountered in December, but advancing $0.07/lb and moving towards the forthcoming February increase.
The rise in monomers continues apace and shows no immediate signs of abatement. Since spot refinery-grade propylene (RGP) prices added another $0.03/lb last week to trade at $0.55/lb, monomer producers revised their contract price increase nomination from $0.05/lb to $0.08/lb. Some PP producers are now seeking to increase February resin contracts by $0.08/lb while others are going by the change in PGP monomer costs plus and extra $0.02/lb.
By running reactors at an American Chemistry Council (ACC) estimated rate of just 71.4% in December, PP producers were able to liquidate nearly a quarter-billion lb from their collective inventories, leaving just 1.26 billion lb on hand at the end of the year. Greenberg points out that this is the lightest monthly inventory TPE has seen since it started keeping records. There is a risk of retail customers pushing back against future increases in PP and further destroying demand for the material, but Greenberg says some market participants are starting to see a bubble developing, which could deflate over time. Although for now, Greenberg says processors need to brace themselves for another price increase. —[email protected]