"We are truly in the midst of a year-end market." That's how spot-trading platform, The Plastics Exchange (TPE) summed up resin trading last week, saying that overall the markets were fairly quiet, with significant interest lacking from buyers or sellers and prices holding steady. Polyethylene (PE) producers are generally offering spot railcars higher, reflecting their intent to implement a $0.05/lb increase. December polypropylene (PP) contracts are marked down $0.02/lb along with polymer grade propylene (PGP). The U.S. dollar is gaining strength and incremental resin export interest is off.
Energy markets were pressured lower as February rolls to the front futures contract. February crude oil futures lost nearly 6%, falling $5.85/bbl to end the week at $93.75/bbl. February natural gas prices remained weak, sliding another $0.179/mmBtu to finish at $3.174/mmBtu on Friday. The crude oil : natural gas price ratio sits a shade below 30:1, which is tremendously wide by historic standards.
Ethylene's spot market saw modest activity, as prices grew softer with all Gulf crackers back and fully operational. Ethylene for delivery in December traded several times at $0.505/lb, but the week's final deal was done at $0.5075/lb, down $0.0175/lb from the previous Friday. January ethylene traded at a little more than a penny premium to spot. Ethane prices lost a nickel and at $0.79/gal have now given back earlier month gains.
Polyethylene (PE) spot prices held steady, maintaining the $0.02-$0.025/lb gains achieved in the early part of the month. The bottom of the market has definitely cleaned up, with very well-priced offers only occasionally seen. Current conditions indicate about a 50% chance to affirm at least partial implementation of the $0.05/lb price increase in December. Tighter supplies at both producer and reseller levels are finally starting to support some level of a contract price gain. In the interim, PE contracts have actually fallen more than a dime.
Propylene's spot market remains soft, with refinery grade propylene (RGP) margins being squeezed, although the spread to polymer grade propylene (PGP) is very wide. PGP production has been limited by the cracker, which opts to utilize ethane as a feedstock rather than propane, which would otherwise generate larger volumes of PGP. Spot RGP prices came off another $0.015/lb to last trade at $0.385/lb, the lowest price in nearly a year and a half. Once again there were no PGP transactions, but the spot market was offered down another penny to $0.5525/lb, more than $0.02/lb below the previous trade. December PGP contracts settled down $0.02/lb to $0.56/lb.
Polypropylene (PP) spot prices were steady and overall market activity was limited. Upstream inventories have dried up due to restrained PP production along with solid processor demand in November. With December PP contracts dropping $0.02/lb, spot railcar and contract prices are now closely in line. Forward PGP monomer prices continue to be priced at a premium to spot, but all months have eased and the curve is no longer as steep; still, monomer costs are poised to rise in 2012. PP exports only range between 5-7% of total North American PP sales and are therefore not a substantial fundamental currently affecting the market.
Final thought from Michael Greenberg
The spot resin markets were subdued this past week, offerings were sporadic and generally in 1-2 railcar increments as opposed to the larger groups of materials seen in Oct/November. Another $0.02/lb was shaved from December Polypropylene contracts, bringing the 4th quarter loss to $0.22/lb. Polyethylene contracts are still under negotiation, producers are again trying to implement (some of) their $0.05/lb increase. While the market has been slow, there could be another surge in market activity as buyers and sellers assess their year-end inventories and pricing expectations for the first quarter of 2012.