Overview: The spot commodity resin markets showed good trading activity last week, with prices holding steady for both polyethylene (PE) and polypropylene (PP). Plastics spot-trading platform The Plastics Exchange (TPE) reports that resins were flat in spite of the spot monomer markets trading higher, with short-term ethylene supplies affected by a recently reported cracker outage. PP contracts have followed polymer-grade propylene (PGP) monomer downward, settling $0.08/lb lower in June. TPE reports that June PE contract negotiations remain contentious, and are not settled at this time.
Producers had suggested lowering high-density polyethylene (HDPE) and linear low-density polyethylene (LLDPE) prices by $0.04/lb, with low-density polyethylene (LDPE) just $0.02/lb lower. On average, processors are looking for a $0.06/lb decrease.
TPE CEO Michael Greenberg said that a major index, on which many resin contracts are based, estimated that in June, HDPE and LLDPE prices will be $0.06/lb lower while LDPE prices should come down $0.04/lb.
Ethylene spot prices moved higher last week in active trading, fueled by a fresh cracker outage. The front end of the market was stronger than the deferred months, with ethylene for June delivery beginning about a penny lower at $0.31/lb, but after several more trades, reaching above $0.34/lb last Tuesday. Spot ethylene for July delivery was active in the latter part of the week, trading up to $0.355/lb by last Friday, which was more than a nickel higher than the previous week.
Propylene spot prices continued to bounce back, adding another $0.03/lb last week. Refinery grade propylene (RGP) for both June and July delivery traded actively throughout the week at $0.43/lb. Spot PGP remains illiquid and once again no trades were consummated last week. The most recently reported PGP transaction was earlier in the month at $0.505/lb for August delivery. June PGP monomer contracts settled down $0.08/lb to $0.555/lb.
Energy markets moved in opposite directions last week, with crude oil for August delivery seeing a modest gain of $0.60/bbl, to close at $78.86/bbl, while August natural gas dropped back below the $5/mmBtu threshold to end the week at $4.908/mmBtu. That represented a loss of $0.141/mmBtu, and helped expand the crude oil:natural gas price ratio to 16:1.
Greenberg commented on the rollercoaster first half of 2010 for resin prices, noting that PP contracts were as much as $0.22/lb higher through April and have now given back $0.20/lb. PE contracts, meanwhile, added $0.18/lb during the first quarter of 2010 and are still holding on to some gains (between $0.06-$0.08/lb), depending how June contracts settle.
Polyethylene (PE) spot prices stalled their slide last week, with prices holding steady across the board and supply starting to dry up. Spot ethylene monomer prices were about $0.03/lb higher, reacting to a fresh cracker outage. June PE contracts remain unsettled, with suggested decreases ranging from $0.02 to $0.08/lb.
Contract PE prices increased $0.18/lb during the first quarter of 2010, while the ethylene net transaction price (NTP) was up $0.125/lb. Given that, Greenberg points out that producers were able to increase contract production margins by $0.055/lb during the first three months of 2010. During April and May, ethylene's NTP was down $0.1075/lb, while PE contracts slid just $0.06/lb, so that by the end of May, PE margins had expanded by slightly more than a dime during 2010.
The spot side of the business did not fare so well, according to TPE. Spot ethylene prices jumped $0.38/lb, peaking at $0.74/lb in early-mid April, as they were driven by a series of planned and unexpected cracker outages. During the same period, spot PE topped out with a gain of only $0.18/lb, hence a $0.20/lb squeeze in spot PE production margins on the way up. However, since the peak, spot ethylene prices have dropped $0.40/lb, while average spot PE prices are down just $0.15/lb. "Although it was a rough first quarter," Greenberg said, "PE producers have recouped the spot margin loss and have now actually expanded spot margins by $0.05/lb for the year."
Producers leaned on the unusually strong export market throughout 2009, but export sales have slowed dramatically thus far in 2010. According to American Chemistry Council (ACC) data, exports ran at an average monthly clip of 860 million lb during the last half of 2009. Through the first 5 months of 2010, however, they've only averaged 645 million lb/month, including an average of only 557 million lb for April and May.
Sharply higher production costs shut down a significant part of the export arbitrage to Asia and India, which comprised the majority of exports. According to ACC data, producers entered 2010 with 2.7 billion lb of PE inventory on hand, which was about the average of 2009, but down 17% from 2008. PE inventories began to rise in March 2010, amid weak exports, and expanded to more than 3.1 billion lb by the end of May: their highest level in 18 months. "With all the extra supply, one might ask, 'Where is all the resin?'" Greenberg said, before adding that is indeed a good question.
Greenberg speculated that given the volatile production economics, producers seem to have limited their manufacture of the non-pure commodities and apparently only made surplus quantities of easily exportable material. Some commodity grades including HDPE blowmolding and LLDPE butene, which are two very typical export resins, are plentiful, but most other grades are still scarcely supplied. HDPE injection is hard to come by and LDPE film (and injection), which has also suffered production issues, is barely seen at all in the spot market.
In terms of June contracts, producers remain firm to lower LDPE by $0.02/lb and HDPE/LLDPE by $0.04/lb, while processors have been pushing a $0.06-$0.08/lb decrease. Word has spread that at least one producer met the $0.06/lb decrease, but others have yet to meet that competitive offer. "Whatever the June outcome," Greenberg said, "either $0.02-$0.04/lb or $0.04-$0.06/lb, there is always July to make up the difference."
Polypropylene (PP) spot prices were steady last week, holding on to the penny gain from the week prior. While spot PP supplies remain high, they are dwindling into month end. Propylene monomer prices continue to recover, reinforcing the newfound stability seen in the resin market. June PP contracts were down $0.08/lb, which was inline with the decline in PGP contracts.
Spot PP prices rallied $0.26/lb during 2010 before peaking in early-mid April and have since given back the gains in their entirety. The market popped back $0.01/lb from its low and remains priced at this level. Some market participants had anticipated a steeper decline in prices and were speculating that another $0.06-$0.10/lb chunk could come out of the contract market in July. However, now that the propylene market has found support, resin buyers are again "picking away" at the spot PP supply, according to Greenberg, slowing adding to their inventories.
The export market saw a small pickup in demand, perhaps made more evident by the lack of trader inventory, which had been largely liquidated. Exports in June were 152 million lb, up 55% from the previous monthly average of 2010. At this level, however, they're still down 17.5% from 2009's average. Producer inventories have grown, however, expanding some 16% since the beginning of the year to 1.65 billion lb. That's their highest level in 18 months. According to the ACC, however, they are still 7.5% below the 2008 average when the industry just generally kept more inventory on hand.
Domestic demand is showing some signs of life, with U.S. PP sales up 5.5% in May over April. They are still down a 17% from the monthly sales levels seen even few years back, however. If there is relief in PP pricing, will the demand destruction caused by PP nearing $1.00/lb be repaired? "The past few hurricane seasons and periodic runaway monomer costs, drove PP prices sharply higher," Greenberg said, "and at the same time drove many processors out of business. Automotive demand is still suffering and many of the household storage products have been priced off the shelf. However, now that resin prices have returned to a more palatable level, can long-tem demand return?"
PP contracts are $0.08/lb lower in June after losing $0.12/lb in May, so that the market is only $0.02/lb higher for the year. Some thought that July PP contracts would more than erase the remaining 2010 increase and see net lower prices for the year, but now that RGP monomer has rebounded to $0.43/lb for both June and July deliveries, perhaps the last $0.02/lb might be all there is relieved in July. "With turbulent energy and monomer markets at hand, things can change quickly," Greenberg warned, "not to mention that Alex just became the first named Gulf storm of the season, threatening hurricane status in the coming days." —[email protected]