Polyethylene (PE) spot prices rallied during the first part of the week, before beginning to ease as spot ethylene softened and resin market sentiment waned. Michael Greenberg, CEO of plastics spot-trading platform, The Plastics Exchange (TPE), said many PE grades still finished with a $0.01/lb gain, but others, including certain film grades, actually dropped about $0.01/lb.
Restrained ethylene supply and the associated high cost remain the critical fundamentals affecting the market, with producers leaning on this feedstock cost pressure and tight resin supplies to support their efforts to increase March contracts $0.06/lb. "But with spot monomer prices starting to fall," Greenberg asked, "will the March cost-push price increase still be warranted?"
Participants trying to make sense of the market could get to the crux of the problem by developing a unifying theory for ethylene monomer contract pricing, but as Greenberg noted, a formula for figuring the overall costs for PE feedstock "seems to be as closely guarded as the one for Coca-Cola." Ultimately, it would likely include a mix of the Net Transaction Price (NTP), spot averages, and an ethane-plus component. Greenberg said the ethylene NTP increased a total of $0.095/lb between January and February. During this same time, the $0.12/lb of PE increases that were added to resin contracts, create an apparent contract-to-contract margin expansion of $0.025/lb.
Since the beginning of January, spot ethylene has rallied some $0.33/lb, before easing a bit last week. On average, spot PE only gained about $0.16/lb so far this year, for a spot-to-spot margin loss of about $0.17/lb. In some cases, spot PE can currently be bought for roughly the price of spot monomer, with the margin squeeze affecting PE production.
American Chemistry Council (ACC) preliminary data show PE producers throttling back their reactors in February, running at only 87.4%, significantly less than the 94.4% pace of January. PE exports in February continued to slow to only 655 million lb, representing 22.5% of total PE sales, with both figures at the lowest levels since February 2009.
February domestic sales also dropped to about 2.25 billion lb, well off the 2.42 billion lb sold in January, but only down 35 million lb from the previous 12-month average. Ending February PE inventories, which tend to ultimately change a bit from preliminary figures, appeared to be about 2.7 billion lb, up about 40-50 million lb from January.
After calling the PE market firm in the previous report, Greenberg said that while the spot PE market is still mostly firm, spot ethylene is in fact weakening, with at least two previously downed ethylene crackers back on-stream and another ethylene producer having postponed maintenance on their cracker for several months. As a result, while ethylene for March delivery only came off $0.02/lb to $0.68/lb, April Ethylene has been offered $0.11/lb lower than its high trade of $0.65/lb. Despite that, ethylene has been as high as $0.70/lb in March and resin inventories remain tight, leaving implementation of the full $0.06/lb proposed increase on the table. "The market has been busy and it is only mid-month, so a lot could still happen," Greenberg said. "This one could be contentious."
Polypropylene (PP) spot prices edged another $0.005/lb higher last week, amid still rising feedstock costs and tight prime supplies. Spot refinery grade propylene (RGP) rose $0.025/lb to $0.60/lb, with March polymer grade propylene (PGP) steady at $0.73/lb, while PGP for April delivery jumped to $0.77/lb. March PGP contracts settled early in the month, rising $0.05/lb to $0.685/lb, and spot PGP is trading at a considerable premium.
As they tried in February, some producers are seeking to increase March PP contracts in line with the change in PGP monomer, in this case $0.05/lb, plus an additional $0.02/lb to help offset other rising costs. Given that a large number of PP contracts are based on monomer costs plus a fixed premium, the average price increase will indeed be commensurate with the rise in monomer. In some cases where prices are freely negotiated, the added increase might be realized.
While there have been very few Generic Prime PP railcars offered to the spot market, a good flow of widespec resin has still been seen. Prime cars are priced into the $0.80s/lb, which includes the current $0.05-.07/lb increase sought by producers for March contracts. Widespec material is priced at a discount, mostly in mid $0.70s/lb, but in some cases is lower and not even covering the monomer cost.
According to preliminary ACC data, PP producers ran their reactors in February at a low operating rate of just 81.1%. February domestic sales are estimated to be 1.22 billion lb, about 5 million lb above the previous 12-month average. The high cost of domestic PGP monomer has virtually shut off the overseas export market, with February PP exports only totaling 94 million lb, which is 48% lower than the previous 12-month average.