Polyethylene (PE) spot prices rallied $0.005-$0.01/lb last week and overall spot supplies remain limited. Michael Greenberg, CEO of plastics spot-trading platform The Plastics Exchange (TPE), said producers successfully implemented a $0.08/lb price increase onto February contracts, and with ethylene monomer costs continuing to rise, they now have their sights set on enforcing a $0.06/lb increase for March. No respite in April, with a $0.05/lb increase announced.
Following the Chinese New Year, high-volume spot exports to Asia have not resurfaced, but scarce monomer and tight production margins should keep domestic resin supplies in check and pricing power in the hands of the sellers.
Producers offered few fresh railcars last week, with the bulk of recent spot liquidity coming from Houston exporters or domestic resellers with older resin on hand. Overall domestic demand is reserved, but a discount can secure orders, with processors looking to beat their contract resin costs. Low-density polyethylene (LDPE) and linear low-density polyethylene (LLDPE) film grades are scarce, while high-density polyethylene (HDPE) blowmolding and injection grades are a bit more available. Greenberg notes, however, that, "The market is not by any means awash in resin."
Cracker complications continue to constrain current ethylene supplies, limiting monomer availability and maintaining upward pressure on prices. Ethylene for March delivery has now traded as high as $0.60/lb, with the April market discounted just a couple cents. Just as March ethylene rallied to close its gap to February, April has done the same to March, indicating that the monomer situation will continue for the time being. Greenberg says market participants seeking monomer and resin price relief will likely have to wait until May, with ethylene deliveries for that month now carrying a steep discount. Nominal prices are in the high $0.40s/lb, with the second half of 2010 currently priced in the high $0.30s/lb.
The high cost of monomer due to U.S. production issues has priced spot PE out of reach for high-volume Asian buyers, closing the export window even after the end of the Chinese New Year, with Chinese buyers turning to competitive offers from their local markets as well as the Middle East.
Domestic PE processors are now digesting the February $0.08/lb price increase, with many saying they will be unable to pass the increase further downstream. "February flew by and the March $0.06/lb increase is already upon us," Greenberg said. "We will watch and see how it plays out over the next couple weeks. Oy, polyethylene is starting to seem extremely expensive again."
Polypropylene (PP) spot prices jumped another $0.01-$0.015/lb last week as the February market came to a close and participants began to focus on March. Just as February resin contracts were being finalized up $0.065-$0.075/lb, this cost-push market received another jolt as polymer-grade propylene (PGP) contracts were nominated to increase an additional $0.05/lb in March.
PP producers promptly issued their own price increase letters for March, while buyers came in to scoop up any relatively well-priced spot offers. Current PP price increases range from simply $0.05/lb to whatever March PGP monomer contracts settle plus an extra $0.02/lb-just as some attempted in February in a bid to beef up margins. With many high-volume PP contracts tied directly to monomer, most buyers in February paid an extra $0.065/lb for their branded prime resin, which is commensurate with the rise in PGP contracts. Greenberg says that some market participants who freely negotiate their monthly price reported paying $0.075/lb higher than in January. On average, producers didn't gain much in the way of margins in February, but as noted, they are trying again in March.
There has been a consistent offering of off-grade cars on the spot market, but the normal flow of generic prime PP railcars has slowed. High PGP costs, a difficult resin sales environment, and financial challenges have encouraged PP producers to limit production to forecasted orders. In the most recent wave of price increase letters, to ensure continuity of supply, producers have urged customers to submit purchase orders during the first week of March. "Similar requests have been made before," Greenberg notes, "but during these tight supply conditions, buyers' acquiescence might now truly be warranted."
PP exports briefly peaked last year around 300 million lb in April when Asian demand was very strong, while averaging 185 million lb during 2009. In December, they slumped to just 107 million lb, and although there was a slight pickup in January when traders and processors did some restocking, exports remain "challenging," according to Greenberg.
PGP monomer typically carries a $0.05/lb premium to refinery-grade propylene (RGP). While spot PGP rallied $0.12/lb since the first week of January, spot RGP has added just $0.03/lb. With PGP prices now at $0.67/lb and RGP at $0.54/lb, the spread has ballooned to $0.13/lb. This wide PGP to RGP premium is atypical in other regional markets and has impacted spot export sales even to natural markets such as Mexico and South America. Without a substantial export market to provide alternative demand, producers need to maintain their disciplined production levels and inventory control. If they do, Greenberg says that between February and March, producers might be able to secure that extra $0.02/lb margin they have been seeking over their PGP cost increases.—[email protected]