Market overview: Polyethylene (PE) and polypropylene (PP) prices continued to fall last week, with PE dropping $0.01-$0.02/lb and PP down another $0.02/lb. After a two-month slide, monomer markets did find some stability, however, according to plastics spot-trading platform, The Plastics Exchange (TPE), with two-sided action seen. Overall spot resin supplies have improved and contract resin buyers will find "considerable relief" in June, according to TPE.
After climbing $0.18/lb during the first quarter and holding steady in April, May PE contracts were split, with high-density polyethylene (HDPE) and linear low-density polyethylene (LLDPE) down $0.06/lb. Low-density polyethylene (LDPE) prices, meanwhile, fell only $0.04/lb. Early June negotiations see producers informally offering to lower June PE contracts by $0.04/lb, while processors are pushing for a $0.06-$0.08/lb cut. After climbing $0.22/lb through April, PP contracts shed $0.12/lb in May and look to lose another $0.08/lb in June.
Ethylene prices fell further last week, with material for June delivery trading down under $0.32/lb before recovering slightly. The monomer transacted at $0.33/lb on Friday but still finished the week down $0.015-$0.02/lb. The Net Transaction Price (NTP) for May Ethylene previously settled down $0.0775/lb at $0.4475/lb.
Propylene, in what was a rare occurrence of late, saw its spot prices actually rise in fairly light trading. Refinery grade propylene (RGP) last transacted at $0.39/lb, which is a penny higher than the previous week. Polymer-grade propylene (PGP) for prompt delivery did not transact, while August traded at $0.505/lb. June PGP monomer contracts settled early in the month at $0.555/lb, down $0.08/lb.
Energy markets: July crude oil recovered most of its losses from the previous week, gaining $2.27/bbl to settle at $73.78/bbl on Friday. July natural gas flirted with the $5/mmBtu level, but ultimately shed a modest $0.016/mmBtu for the week, closing at $4.781/mmBtu. The crude oil:natural gas price ratio expanded slightly to 15.4:1.
Polyethylene (PE) spot prices remain under pressure, with the average price falling $0.01-$0.02/lb last week. Spot availability has increased with fair-priced offers seen across the complete spectrum of commodity grades. After losing $0.06/lb in May, with LDPE down $0.04/lb, June PE contracts are again poised to settle sharply lower, according to TPE CEO Michael Greenberg.
From their early-mid April apex of $0.74/lb, spot ethylene prices have since plummeted, trading back to the mid-$0.30s/lb by the end of May. The monomer traded at $0.32/lb last week. While spot PE prices were also weaker, they have not fallen nearly as much, widening spot margins, thus encouraging added PE production.
According to preliminary American Chemistry Council (ACC) data, collective PE reactors ran at 93% of nameplate capacity in May, producing 3.2 billion lb of resin, about 140 million lb more than in April. Domestic sales, at 2.35 billion lb, were up about 67 million lb compared to April, while exports rose by just 17 to 567 million lb, which is 38% less than the 909 million lb exported in Dec 2009.
Those added sales were not enough to absorb May's fresh production, leaving an excess of 225 million lb of unsold PE to further expand producer inventories. By the end of May, these inventories had swelled to nearly 3.2 billion lb, which is their highest level since November 2008.
Exports are up as producers look offshore to move high volume parcels of material, with commodity-grade HDPE for blowmolding and film, as well as LLDPE butene and hexene sold into the export market at steeply discounted prices. In addition, Greenberg says generic prime railcars have again been seen in the domestic spot market.
"Rising resin inventories, falling feedstock costs, and mediocre demand are a recipe for lower prices," Greenberg said, adding that from their April peak, average spot PE prices have already dropped about $0.11-$0.12/lb. Given the large margin between spot ethylene and PE, coupled with the relatively stable outlook for ethylene for the rest of 2010, some market participants believe resin prices have more room to the downside, according to Greenberg.
Polypropylene (PP) spot prices peeled back another $0.02/lb last week, to settle at an average of $0.60/lb, which is exactly where they were when the year started. In between, prices rocketed up $0.26/lb, making for a whip-saw ride through the first half of 2010. TPE notes that PP contracts were up $0.22/lb through the first quarter, but fell $0.12/lb in May, and will officially settle $0.08/lb lower in June, matching the drop in PGP contracts.
Greenberg explained that after watching PP production margins be squeezed sharply over the past several years, producers have opted to directly tie prices on many of their resin contracts to changes in PGP. While this has resulted in "minimally acceptable margins", according to Greenberg, the move has helped PP manufacturers better ride the wave of feedstock volatility. It has also meant that contract prices have followed the PGP monomer market in lockstep, up and down.
The spot market, however is a different story, being "whipped around quite a bit" according to Greenberg, with moves often exaggerating the market's directions. While contract PP prices went deep into the $0.80s and even $0.90s/lb, there was very little spot commodity-grade material that actually traded above the high $0.70s/lb.
Once the downtrend began, generic prime railcars re-appeared as producers sought to liquidate high-cost inventories. According to recently released ACC data, those PP inventories grew by 85 million lb in May to 1.67 billion lb: their highest level since November 2008. At 160 million lb, PP exports are at their highest since October 2009, doubling February's levels. Domestic PP sales in May were 1.25 billion lb, roughly equal to the trailing 12-month average.
The spot propylene market has found some stability of late, settling in the high $0.30s/lb, with RGP prices trading a penny higher at $0.39/lb. There is good value in this price range, according to TPE, based on propane costs or alternative uses for the product, such as alkylation.
PGP prices remain elevated compared to RGP, although the premium has shrunk considerably, with the spread far from the $0.20+/lb seen in March/April, and now in the low teens. That difference, however, is still above the historic average of $0.05/lb.
"If polypropylene prices were to erode further, it would likely come from a further reduction in the PGP-RGP premium," Greenberg said, "since RGP has caught a bid." Petrologistics propane-dehydrogenation (PDH) plant in Houston is scheduled to start up during the last week of July, which would add to PGP supplies, but, as Greenberg quipped, "are these major projects ever completed on time?" Regardless, Greenberg believes June PP contracts will settle down $0.08/lb, bringing total 2-month relief to $0.20/lb.
