Polyethylene (PE) spot prices rallied $0.05/lb last week amid soaring feedstock costs and some force majeure conditions in ethylene and PE. Michael Greenberg, CEO of plastics spot-trading platform, The Plastics Exchange (TPE), said a $0.10/lb jump in spot ethylene means PE producers will be resolute in their effort to enforce the full $0.06/lb price increase they previously nominated for March contracts. "We see the PE market very firm right now," Greenberg said, "and unless something drastically changes, expect most if not all of the current $0.06/lb price increase to become implemented for March contracts." That increase comes on the heels of the $0.12/lb in increases successfully implemented between January and February, with another $0.05/lb already floated for April.
In a display of how quickly the market moved, Generic Prime PE railcar offers that reflected the full $0.06/lb March increase were put forward last Monday and Tuesday, with the higher price shocking some. By the end of the week, however, railcars priced with only a $0.06/lb increase were no longer available in a domestic market that's been thrown on its head.
"These runaway ethylene and polyethylene prices are uniquely a North American phenomena," Greenberg said, "driven by numerous complications in monomer production." The rapid rise has left U.S. PE uncompetitive on the international market, causing high volume spot exports to cease. "In fact, for the first time in ages, we are seeing realistic import offers coming from Europe and the Middle East," Greenberg said.
March delivery ethylene is currently priced at $0.70/lb, with April trading at $0.62/lb, and May nominally priced in the low-to-mid $0.50s/lb. The backward dated shape of the forward curve for ethylene, which has been intact since the supply issues began in January, looks to remain going forward, with futures dipping into the low $0.40s/lb for the third quarter, and high $0.30s/lb for the fourth quarter.
Polypropylene (PP) spot prices moved another $0.02/lb higher last week, propelled by still rising feedstock costs and low resin inventories. Spot polymer-grade propylene (PGP) traded $0.06/lb higher, last transacting at $0.73/lb. Reduced splitting capacity has helped the monomer maintain a huge premium over refinery-grade propylene (RGP), which added a few cents last week and is now up to $0.575/lb. March PGP contracts settled early in the month, rising $0.05/lb to $0.685/lb.
In terms of resin, there were limited volumes of Generic Prime PP railcars shown to the market last week, all including the current $0.05-.07/lb increase sought by producers for March. As they have tried in February, producers are seeking to expand their margin on top of monomer costs by $0.02/lb. "With so many PP contracts tied to monomer, at least the added costs will be covered in March," Greenberg says. PP producers are sticking to production discipline, but in order to maintain consistent prime resin output, reactors still need to be run above 80%. To balance this production requirement and a desire to keep inventories low, producers are encouraging processors to place orders early in the month.
Against the backdrop of reduced production, more offgrade resin seems to be available in the spot market, and given the prospect of $0.80+/lb contract railcars, even processors that typically only purchase prime resin are entertaining widespec material. Other than to points south, including Mexico, the export market has dried up. Greenberg says March PP contracts will settle at least $0.05/lb higher, with the possibility that producers will gain that sought-after extra margin.