Overview: Spot resin prices continued to fall as market participants began looking forward to June and an anticipated further drop in contract prices. Spot plastics-trading platform, The Plastics Exchange (TPE) reported that monomers were also weak, which only added to the overall negative sentiment. Spot-trading volumes were below average throughout May, according to TPE, as buyers pulled out of the market, only buying material on an as-needed basis under the assumption that prices would continue to fall.
High-density and linear low-density polyethylene contracts were down $0.06/lb in May, while it appeared that low-density polyethylene (LDPE) contracts would be down $0.04/lb. High-density and linear low-density PE contracts are still up $0.12/lb for 2010. Polypropylene contracts dropped $0.12/lb in May, but PP contracts are still up a dime for the year. "There has been quite a bit of speculation as to the magnitude of June resin contract relief," said Michael Greenberg, TPE founder and CEO, "but it is too early to call, other than simply...lower."
Ethylene spot prices moved lower, dropping at least another nickel in what TPE called fairly active trading. Ethylene for June delivery traded several times, with transactions ranging from $0.40/lb in the beginning of the week to $0.36/lb by last Thursday. Participants have not yet agreed to an ethylene net transaction price (NTP) for May. In April, the NTP was $0.525/lb. At $0.36/lb, spot ethylene prices are back to where they began the year, although they did spike to $0.74/lb in the intervening months.
Propylene has again come under pressure, with refinery-grade propylene (RGP) for June delivery trading as low as $0.38/lb last Thursday, some $0.05-.07/lb lower than where May RGP traded in the previous week. A final May delivery polymer-grade propylene (PGP) trade came in at $0.55/lb, a full $0.10/lb below the prior trade and $0.24/lb less than 2010's peak. May PGP contracts were priced at $0.635/lb, down $0.12/lb.
Energy markets in the U.S. rebounded last week, with July crude oil futures rising from Tuesday's low of $67.15/bbl to rally above $75/bbl on Friday. They eventually eased to $73.97/bbl, for an overall gain of $3.93/bbl. July natural gas futures added $0.235/mmBtu, closing the week at $4.341/mmBtu. The crude oil:natural gas price ratio contracted slightly to 17:1.
Greenberg noted that resin processors enjoyed significant price relief in May, with PE contracts down anywhere from $0.04-$.06/lb, depending on grade, and PP off $0.12/lb. Many resin buyers anticipate further price drops in June, as monomer costs continue to slide, but market threats still loom. "Dare we say it," Greenberg said, "the 2010 Hurricane season officially starts June 1, but let's keep them at bay this year as the Gulf needs a rest!"
Polyethylene (PE) spot prices were $0.01-.02/lb lower last week, amid weaker monomer markets and expectation of further reductions. May began with a $0.05/lb PE increase on the table, with that proposal taking all month to settle on the contract price. Prices held steady for a bit, were then offered down $0.03/lb, but ultimately May PE contracts came in at $0.04-$0.06/lb lower, depending on grade. In spite of May's maneuvers, average PE prices are still up $0.12/lb for 2010.
Spot ethylene prices began 2010 around $0.37/lb, doubled by early April, and have since given back all of the year's gains. PE producers used the feedstock gains to support their $0.18/lb of first-quarter price increases, and now that the cost-push pressures have subsided, resin buyers expect PE prices to come down as well.
PE spot trade has been relatively slow the past several weeks, with buyers in general still seeming to have adequate inventory on hand, in terms of both pellets and finished goods. Spot railcar buyers have opted for truckload deliveries when they're forced to fill in supply gaps for particular materials.
True to recent form, commodity PEs such as HDPE blowmolding and LLDPE butene have been readily available and prices are discounted to clear surplus supplies. However, certain resins, including most injection grades as well as high-end film materials, remain scarce, allowing some portions of the market to resist deeper cuts. The lack of LDPE has helped producers limit the price reduction granted in this grade to $0.04/lb in May.
Lower U.S. resin prices have helped revitalize the export market, but spot trade is still challenging, according to TPE, and it is much more so than when the arbitrage window was wide open. While well-discounted high-volume deals have been heard traded through large exporters, spot offers that serve the general 100- to 500-tonne export market have been priced too high to easily seal such deals.
Never dull, Greenberg said PE in June will keep market participants' attention. "The polyethylene market will be interesting in June," Greenberg said. "Buyers expect resin prices to drop substantially, but in May, producers have already shown their reluctance to simply drop prices. Sharply lower spot ethylene prices this past week further expanded spot margins, providing ample room to share some downstream."
Polypropylene (PP) spot prices continue to fall, dropping another $0.03/lb last week. Since its early-mid April peak, the spot PP market has fallen $0.22/lb. Spot propylene monomer also traded sharply lower, signaling likely prospects for another steep decline in polymer-grade propylene (PGP) and PP contracts in June.
When May PGP contracts dropped $0.12/lb, PP followed. However, due to the run up in prices through the first three months of the year, PP contracts remain $0.10/lb higher in 2010. Refinery grade propylene (RGP) prices began the year at $0.47/lb, making their way to $0.60/lb in March before giving back the gains and then some, with the most recent transactions at $0.38/lb. At this point, RGP prices are actually lower for the year, while PGP prices are just where they started. The resulting $0.17/lb premium between PGP and RGP is "extraordinary" by historic standards, according to Greenberg, as $0.05/lb is more typical.
Part of the widening of PGP-RGP premium during the first quarter can be attributed to a shortage of operating splitter/refinery capacity, but it has already started to contract from levels above $0.20/lb. It is anticipated that when Petrologistics new propane dehydrogenation plant, which will convert propane directly to PGP "on-purpose" at the rate of 100 million lb/month, comes on stream in Texas in late July, the premium could shrink further, settling back towards a more normal level.
May PGP contracts settled at $0.635/lb, and based on current spot prices, June PGP is poised to settle sharply lower, bringing PP contracts right down with them. Anticipation of lower PP contract prices in June encouraged buyers to limit their resin orders during April and May, causing producer inventories to bulge, pressuring the spot market lower, and creating export opportunities, including prime to Latin America and widespec to India/Asia. Greenberg said that domestic processors have also only been buying spot material as needed, as they too hold large-volume orders for June. —[email protected]