Market overview: The spot resin market quieted over the holiday-shortened week, as limited buyer interest was greeted by an average flow of fresh offers. After rising in early September, commodity resin prices held steady across the board, according to spot-trading platform, The Plastics Exchange (TPE). TPE CEO Michael Greenberg noted that after heavy summer buying to restock inventories, buyers have started pulling out of the market. This retraction has been further stimulated by proposed September price increases for polyethylene (PE) and polypropylene (PP) that average $0.05/lb.
Energy markets continued to move in opposite directions again last week, as October crude oil futures rallied further, adding $1.85/bbl to end the week at $76.45/bbl. October natural gas futures bounced around in negative territory all week, finally settling at $3.883/mmBtu on Friday, down $0.056/mmBtu. The crude oil : natural gas price ratio expanded to 19.7:1, much wider than the 6:1 ratio considered parity. Monomer producers that derive their feedstocks from natural gas continue to benefit from a cheaper slate of feedstocks than those utilizing crude and its derivatives. TPE noted that on average, this provides a cost advantage to North American ethylene and PE producers over their international counterparts.
Ethylene spot prices fell in heavy trading, continuing to give back the sharp gains achieved at the end of August when production at two crackers was suddenly disrupted. Spot ethylene had reached into the low $0.40s/lb, but those gains evaporated after the unplanned outages were resolved. Ethylene for September delivery traded as low as $0.305/lb, with a final Friday transaction at $0.31/lb, erasing more than $0.07/lb last week. Forward months also saw good activity with material for November and December delivery both trading a shade below the $0.30/lb level. Current spot prices are well below the net transaction price (NTP) of $0.39/lb that was established for August.
Polyethylene (PE) supplies remain tight, which supported producers' efforts to achieve their announced $0.05/lb price increase for September contracts. In many cases, however, buyers appear to have sufficient inventory to abstain from major purchases at this time. According to preliminary data recently released by the American Chemistry Council (ACC), PE sales in August exceeded 3.4 billion lb, fully 11% more than the previous 6-month average and the highest level since June 2008.
That strong demand allowed producers to run reactors above 96.5%; a utilization rate not seen since July 2008. Although exports were a respectable 660 million lb, rising North American resin prices eliminated many of the high-volume spot opportunities that pushed monthly export volumes above 850 million lb during the second half of 2009. TPE noted, however, that domestic demand in August was nearly 2.75 billion lb, which helped contribute to a drawdown of producers' collective inventories of almost 140 million lb, ultimately leaving them about 2.84 billion lb on hand to start September.
Propylene saw limited activity, with spot refinery-grade propylene (RGP) trading slightly lower after a couple weeks of steady pricing, slipping a half-cent to $0.45/lb. Once again, there were no spot polymer-grade propylene (PGP) transactions reported, but material remained offered as low as $0.575/lb, which is a bit below the $0.60/lb level that September PGP contracts settled at, up $0.025/lb, earlier in the month. TPE anticipates that the steep $0.12-$0.13/lb premium PGP currently holds to RGP could begin to draw down towards the historic spread of about $0.05/lb.
Polypropylene (PP) spot prices remained steady, with the market starting to feel "a bit heavy", according to TPE, by the end of the week. Strong buying and inventory replenishment throughout the summer has allowed processors in general to balk at offers in the $0.70s/lb. Spot demand has begun to wane and generic-prime railcars are now surfacing. "The market is far from flush with resin," Greenberg said, "but the re-appearance of this material, which had been absent in the market, is worthy of mention." Widespec offers are now generally priced in the mid-to-high $0.60s/lb, which isn't enticing buyers and points towards a greater downside for prices going forward.
According to preliminary ACC data, domestic PP demand in August eclipsed 1.45 billion lb, which was 9% above the previous 6-month average, but 75 million lb lower than July. Higher priced resin has severely impacted international demand, pushing August exports to just 67 million lb, their lowest tally since February 2006. Greenberg noted that PP producers read the market well, throttling back their reactors by about 3% to a shade under 90%, which allowed a modest drawdown of 40 million lb from their collective inventories. They entered September with 1.471 billion lb of PP on hand.
At mid-month, September price increases are far from settled, according to Greenberg, who said that despite the fact that spot PE quickly added a few cents prior to the proposed contract increase, and producers seem intent on enforcing the full nickel, a stand-off appears to be developing. Greenberg said that falling spot monomer prices have weakened producer's cost-push argument, particularly for PE, and could again disable PP producers' bid for margin expansion. Given that, TPE did say that the supply/demand balance in both commodities remains tipped in favor of producers.