Overview: Steady prices and an easing of spot-offer flows characterized the North American resin market last week, after an extended run of sharp, downward pressure. Michael Greenberg, CEO of plastics spot-trading platform, The Plastics Exchange (TPE), said the spot monomer markets bounced a bit after a precipitous drop during the last part of April. As U.S. resin prices fall, the export market has once again become active. With polypropylene (PP) contracts up $0.22/lb so far in 2010, and polyethylene (PE) contracts $0.18/lb higher this year, Greenberg believes May could be an intriguing month for pricing now that the monomer markets have given back a significant portion of their 2010 gains. "May resin contract negotiations will be very interesting," Greenberg noted.
Ethylene spot prices reached a high of $0.74/lb in early April before plummeting to $0.40/lb in just a matter of weeks. Thus far, spot Ethylene for May delivery has since rebounded, trading steadily higher and rising from $0.40/lb up to $0.45/lb. The March ethylene net transaction price (NTP) rose $0.03/lb to $0.555/lb, but for April, the Ethylene NTP has reportedly seen those gains reversed, settling back to $0.525/lb.
Propylene spot refinery grades transacted around $0.59/lb in early April, before dropping around $0.20/lb as the month wore on. The market traded a tad higher last week, climbing back up to around $0.41/lb. Spot polymer-grade propylene (PGP) reached as high as $0.79/lb before dropping about $0.14/lb, with no recent transactions for this grade, according to Greenberg. May PGP contracts were initially nominated to decrease $0.06/lb, but some participants have reportedly now settled down $0.12/lb to $0.635/lb.
Energy markets in the U.S. moved in opposite directions last week, with June crude oil futures falling by $11.04/bbl to $75.11/bbl. The drop was accelerated by the Greek credit crisis with served to strengthen the U.S. dollar. June Natural Gas futures rose $0.095/mmBtu to end the week at $4.015/mmBtu, so that the crude oil:natural gas price ratio, which ultimately affects the export appeal of U.S. resins, particularly PE, contracted to 18.7:1.
Polyethylene (PE) spot prices were steady last week, after having already cut $0.06/lb from the highs seen during the first part of April. Although overall PE market sentiment is negative, resin availability remains relatively low and certain grades are outright difficult to source, according to Greenberg.
During the first quarter of 2010, PE producers used scarce and costly spot monomer to support the implementation of $0.18/lb of price increases. Spot ethylene did reach as high as $0.74/lb in early April, but it then plummeted to $0.40/lb, before bouncing modestly to $0.45/lb last Friday. Ethylene NTP dropped $0.03/lb to $0.525/lb in April.
Those lower U.S. ethylene costs have quickly expanded PE production margins and facilitated lower producer offering prices to major exporters. Some traders caught with high-cost material have aggressively cut their asking prices to move their inventories, with exports flowing fairly swiftly again out of Houston. There is some concern, however, that the oil spill in the U.S. Gulf could potentially back up the shipping channels.
As May starts, buyers and sellers have kept to the sidelines, feeling out the market. Producers, on the one hand, have recently seen feedstock costs lowered but some are still standing firm on the current price increase, which would enable a large margin gain in May. Buyers, especially those with ample inventories, are well-positioned to withhold their purchases, however.
Buyers will likely not push for the the current increase effort to be abandoned, but also seek the repeal of a portion of the previous increases, including the most recently implemented $0.06/lb from March.
Given the current state of the ethylene market, Greenberg admitted surprise that the delayed April $0.05/lb price increase is still being pursued for May. "At this juncture, we foresee a flat to $0.06/lb lower settlement for May PE contracts," Greenberg said, "but stranger things have happened."
Polypropylene (PP) spot prices leveled off last week, settling for now at prices about $0.15/lb lower than the highs seen in early April. After rising $0.22/lb this year on the heels of runaway monomer costs, PP contracts are now poised to move substantially lower since May PGP contracts have initially settled down $0.12/lb to $0.635/lb.
Greenberg said that a sense of fear rippled through the PP market prior to what was a relatively quiet first week of May. TPE says its clear that a bubble had been building based on rising feedstock costs. "When the market finally started to burst," Greenberg said, "buyers scattered and sellers dropped prices just looking for a bid to hit. Now that the market has found a new level, a sense of calm has re-entered the marketplace.
Despite the relative calm, Greenberg said that the overall market sentiment remains negative, with the widespec market still pressured and some lower quality materials trading at steeply discounted prices.
Resellers with high-cost inventory are seeking processors in need of a quick spot load and finding them. Buyers that remain bearish are procuring only as needed, and TPE feels it makes sense to them to pay up several cents to purchase a truckload or two rather than take on a railcar.
According to preliminary American Chemistry Council (ACC) data that was just released for April, domestic PP buyers that apparently stocked up in March, which saw its highest sales since May 2008, were just buying ahead of another increase and simply withheld their purchases in April. Domestic sales were down 14% month over month, to just 1.215 billion lb.
Exports were a bright spot, surging 42% in April to 125 million lb, as lower priced prime resin became attractively priced to Latin American buyers while low-end material found an outlet to Asia. Better international sales, were unable to offset lower domestic demand and contributed to a bulge in producer inventories. Those swelled 87 million lb to 1.623 billion lb, the highest level since November 2008. After four months of steep price increases, Grennberg said processors have welcomed the recent weakness in propylene, which will ultimately translate to lower PP contract costs in May. "This relief might only be a start and is sorely needed to help begin rebuilding demand," Greenberg said.