Overview: The slide in spot commodity resin prices that began in May continued into the first week of June, with the average polyethylene (PE) price shedding $0.01/lb and polypropylene (PP) prices giving back another $0.02/lb. Plastics spot-trading platform The Plastics Exchange (TPE) reported that monomer costs also dropped, and market participants fully expect June resin contracts to settle lower.
For all of May, most PE contracts were down $0.06/lb, although tightly supplied low-density polyethylene (LDPE) held firmer only giving back $0.04/lb. Including May's loss of $0.06/lb, PE contracts are still up $0.12/lb for the year, but seem to b e "headed south" according to TPE CEO Michael Greenberg. PP contracts fell $0.12/lb in May, and in June are expected to give back a large part of the $0.10/lb in increases that remain intact during 2010.
Ethylene spot prices fell further last week, with June delivery monomer trading down $0.015/lb to $0.345/lb, while July delivery material changed hands at $0.325/lb. The Net Transaction Price (NTP) for May ethylene settled at $0.4475/lb, down $0.0775/lb.
Propylene spot prices continued to retreat, with polymer-grade propylene (PGP) for June delivery transacting at $0.53/lb, $0.02/lb lower than the final trade in May. The spot monomer market could continue to feel pressure since PGP for July was sold at $0.50/lb last week. June refinery grade propylene (RGP) traded several times around $0.38/lb, with June PGP down $0.08/lb to $0.555/lb.
Energy markets in the U.S. moved in opposite directions, as July Crude Oil fell sharply last Friday, erasing earlier gains to end the week down $2.46/bbl at $71.51/bbl. July Natural Gas futures, however, broke out of a three-month trading range, rallying $0.456/mmBtu to close at $4.797/mmBtu. As such, the crude oil:natural gas price ratio contracted further to move under to 15:1.
"Now that monomer costs have been relieved," Greenberg said, "it is widely anticipated that commodity resin contracts will drop again in June, erasing a significant portion of the price increases that had implemented through April."
Polyethylene (PE) spot prices lost about $0.01/lb this week, retreating on a bearish market sentiment and continued weakness in ethylene. In a relatively rare occurrence, Greenberg noted that PE contracts were split in May; high-density (HDPE) and linear low-density (LLDPE) resins were $0.06/lb lower, while the relatively scarce LDPE only afforded $0.04/lb relief. Early-month discussions surround the level of price decrease that could be implemented for June contracts.
After doubling to $0.74/lb during the first quarter, spot ethylene has collapsed, most recently trading at $0.345/lb, so that it is now actually a couple cents lower for the year. Ethylene rose on a series of planned and unscheduled outages at production plants which created an "environment of inadequate supply", according to Greenberg, while PE producers used these runaway monomer costs to push through $0.18/lb of price increases during the first quarter of 2010.
Once the production issues resolved and most crackers returned back on stream, however, the monomer market broke sharply. Spot PE unwound first; HDPE blowmolding grades have already fallen $0.11/lb. PE contracts, which gave back $0.06/lb in May, have a little catching up to do. At this point, it is anticipated that another $0.04-.$0.06/lb could come out of the contract market in June.
Given the downtrend, processors have changed their buying habits, refraining from large volume commitments as they whittle away at their silos, buying only as needed. Greenberg said this behavior on the part of processors has apparently caused some inventories to build upstream, which that glut evident through recent Generic Prime offerings.
Given the lower prices and greater availability, as expected, export activity is heightened, but Greenberg said that certain dynamics in the export market have also created challenges. Worries about slowing economic growth in Asia region, as well as the falling value of the Euro, is limiting potential high-volume exports. Latin American interest continues to be strong and sales are good, but price ideas have been drifting lower. "It is still very early in the month," Greenberg said, "but based on current spot PE prices, it seems that a $0.04-$0.06/lb drop in June PE contracts is very possible."
Polypropylene (PP) spot prices gave back another $0.02/lb last week and are now $0.24/lb off from their April peak. The market rallied sharply in response to rising monomer costs, but is dropping even faster as they decline. After rising $0.22/lb through the first three months of the year, PP contracts were down $0.12/lb in May. June PGP monomer contracts have just settled $0.08/lb lower, and Greenberg believes the average PP resin contract will follow suit.
At $0.38/lb, the spot refinery grade propylene (RGP) market is $0.09/lb lower than at the beginning of 2010. At $0.53/lb, spot PGP prices are now down about $0.02/lb for the year. Based on its upstream feedstocks and alternative outlets such as alkylation, RGP prices have value at this level. PGP prices however, still have room to the downside, Greenberg said. At one point the PGP-RGP premium had expanded to more than $0.20/lb, and while it has contracted to about $0.15/lb, it is still elevated by historic standards, when compared to the $0.05/lb premium more typically seen.
As PP started to fall, TPE saw typical railcar buyers limit contract railcar purchases and opt for spot truckloads to keep their machines running while they waited for lower prices. "Now that June PGP monomer contracts have already settled, and a full $0.20/lb has come out of the contract market since its peak," Greenberg said, "we are hearing processors increase their contract purchases at these more favorable levels."
PP availability remains high, with good liquidity in both homopolymer and copolymer resins. Widespec railcar offerings also continue to accumulate, and now that Generic Prime offerings have emerged, they require a steeper discount to entice buyers. By and large, the reseller community was conservative with its PP inventories and few were caught with uncomfortable levels of supply to unload. Given this, fresh railcars are currently easier to source than truckloads.
TPE notes that the export market in general has provided a fairly good outlet for those growing PP supplies, with lower quality resins actively selling to India and Asia, while prime resins continue to find demand in Latin American. Tight PP supplies in Europe attracted bids in May, and there was a small window of arbitrage, but the strengthening value of the U.S. dollar has put an end to those opportunities. PGP monomer contracts settling down $0.08/lb for June provides clarity to the PP market, which will see a commensurate drop, that perhaps marks a new "normal", according to Greenberg.
"Ironically the $0.60/lb price level for PP homopolymer was once considered a ceiling, now with mid-$0.80s/lb in the rear view mirror, [it] seems a comparative bargain," Greenberg said. "With most of the year's increases now erased, hopefully PP resin demand will have a chance to begin recovering."