Overview: After a brief reprieve the week prior, spot resin prices once again began falling last week, with average prices about $0.02/lb lower and a wide range seen. The spot monomer markets were relatively quiet with few transactions completed, according to Michael Greenberg, CEO of the plastic spot-trading platform, The Plastics Exchange (TPE). Deals that were consummated were finalized within the recent trading range, and lower U.S. prices have boosted resin export activity. May polypropylene (PP) contracts are estimated to settle $0.12/lb lower, which would be in line with the change in May polymer-grade propylene (PGP) contracts. If so, PP contracts will be giving back more than half of the $0.22/lb gained through the first four months of 2010. May polyethylene (PE) contracts are still being negotiated, and TPE reported that there do not appear to be any producers still seeking to enforce their proposed $0.05/lb price increase. Most are offering to keep prices steady, while processors push for further price relief. For the first three months of the year, PE contracts were up $0.18/lb before staying flat in April.
Ethylene spot markets were subdued, with only a few transactions seen. During the past six weeks, ethylene for prompt delivery traded in the $0.39-$0.74/lb range. Most recently, monomer for May traded at $0.45/lb, the same level as the end of the previous week. June Ethylene traded several times and was priced on either side of $0.40/lb.
Propylene spot activity was also muted, with a lone deal for refinery-grade propylene (RGP) reported at $0.42/lb, which was $0.02-$0.03/lb higher than the low at the end of April, but well off the April high of $0.59/lb. Spot PGP did not trade, with May PGP contracts settling early in the month at $0.635/lb, down $0.12/lb.
Energy markets in the U.S. were very active last week, with crude oil moving lower, while natural gas rallied. June crude oil futures continued to fall, dropping another $3.50/bbl to end the week at $71.61/bbl, which was oil's lowest close since September 2009. June natural gas futures rose $0.297/mmBtu to close at $4.312/mmBtu on Friday, near the top of the recent range. The crude oil:natural gas price ratio contracted further to 16.6:1.
Greenberg noted that processors in general are drawing down inventories and only buying spot resin to fill in short-term gaps, while they await lower prices. PP contracts in May will likely drop $0.12/lb, just as they have for PGP monomer. PE contract pricing is up in the air, and producers have given up on any price increase and are pushing to settle flat while processors would like to see a $0.06/lb decrease.
Polyethylene (PE) spot prices eased another $0.02/lb. "Producers relinquished their last hopes of a May price increase and now skate a slippery slope simply seeking steady contract prices." Processors endured $0.18/lb of first quarter cost-push price increases and now want relief as ethylene has plummeted some $0.30/lb from its April highs.
After reaching $0.74/lb in early April, spot monomer prices have been in freefall, briefly sinking below the $0.40/lb level. Prompt-delivery ethylene has recovered somewhat, trading back to $0.45/lb on relatively light volumes. Recently falling ethylene prices served to better realign margins further upstream, and resin buyers now want a piece of the savings, according to Greenberg.
Anticipating further drops in PE prices fueled by falling spot ethylene prices, processors have started to cut back on their resin purchases. Preliminary American Chemistry Council (ACC) data showed that domestic PE sales fell about 150 million lb from March. Export sales were down 18%, coming in at under 550 million lb, which is their lowest level since January 2009. At the same time, producers throttled back reactors in April to just less than 89% of capacity, but lower sales still resulted in their PE inventories swelling to nearly 3 billion lb: their highest level since November 2008.
Rising inventories and falling prices have restarted the export market, with TPE reporting that several very large transactions were said to have been consummated into the Asian region at prices sharply discounted to the general domestic and 1-2 railcar export price.
Complicating the export market, however, are recent sharp gains in the value of the U.S. dollar, now at $1.24/Euro. That level of strength relative to the Euro has not been seen in four years, and is hampering sales to Europe. Falling crude oil prices and new Asian resin production have also had an impact. "We view the supply side fundamentals as bearish," Greenberg said, adding that lower feedstock costs and the challenging export market would seem to justify buyer calls for lower May and June contract prices.
Polypropylene (PP) remains under pressure, according to TPE, with spot prices dropping another $0.02/lb last week and downward momentum appearing to be "unabated." The spot propylene monomer market has been quiet, but remains about $0.17/lb lower than its recent April highs. The flow of fresh PP railcars continues at an aggressive pace, and while some material is selling, at times it has taken sharp discounts to clear current offerings. TPE expects May PP contract prices to be $0.12/lb lower, equaling the drop in May polymer-grade propylene (PGP) contracts.
That double-digit drop comes after $0.22/lb of price increases were pushed through during the first 4 months of the year. Greenberg said that processors in general welcome the price relief on May contracts, but some are frustrated with the market's volatility. "Outright lower prices are certainly helpful," Greenberg said, "but with the market's bubble-like break, many processors are now finding difficulty passing along the April $0.07/lb increase to the end user."
Spot PP supplies are "plentiful", according to TPE, with fresh railcars for most grades readily available. Widespec material has been discounted to move, while asking prices for generic prime are generally a bit high. Firm purchase orders can usually shake some room in the selling price, and while resellers with high-cost inventory still garner a premium for immediate delivery, those prices are also significantly lower than 2-3 weeks ago.
PP processors still appear to have ample inventories and are keeping fresh purchases to a minimum on the hunch that prices will continue to drop. For their part, traders also feel there could be another wave of price drops in June and some are already floating lower offers for future delivery anticipating cheaper buys to cover their order commitments. —[email protected]