. "Summer demand is not quite as hot as the weather," commented TPE CEO Michael Greenberg. Polyethylene buyers are disappointed at the lack of price relief as contract prices remain at the year's highest levels despite a considerable break in ethylene monomer. Spot polypropylene buyers are faced with limited and expensive sourcing opportunities, while contract PP buyers, mostly tied to contract polymer grade propylene (PGP), are cost advantaged. "However, contract buyers cannot necessarily procure all that they need at those prices," Greenberg said. Export markets are soft as a result of waning demand and generally higher Houston costs.
Energy markets maintained their upward momentum after scoring solid late-week gains. September rolled to the front month crude oil futures contract and added another $2.32/bbl to finish at $107.87/bbl, $15/bbl above month-ago levels. The market has now eclipsed the peak 2011 front month settlement and is back into territory not witnessed since the market was falling apart in late 2008. Greenberg noted that it was "interesting" that Brent and WTI have converged, considering that Brent had often carried a sharp premium. Natural gas surged to its third straight weekly gain; the August futures contracts rallied $0.145/mmBtu to settle Friday at $3.789/mmBtu, back up to levels last seen four weeks ago. The crude oil: natural gas ratio contracted slightly to 28.5:1. The spot ethane market recovered slightly more picking up a cent to end the week at $0.255/gal ($0.1075/lb).
Ethylene's spot market continued its recent slide but then managed to recover the week's early losses to finish steady by Friday. Ethylene for July delivery dropped nearly $0.02/lb in a series of trades to $0.5275/lb before bouncing back to $0.545/lb. Most facilities that had been offline for either planned or unexpected maintenance are now back to the highly profitable business of cracking (mostly ethane) at near maximum capacity. Ethylene prices for the balance of the third quarter are marked the same but give up $0.02/lb during the fourth quarter, as December is nominally priced at $0.525/lb.
Polyethylene (PE) trading activity was average; spot prices were mixed and in most cases supplies improved. The HDPE market for both blow and injection molding was softer, while LDPE availability remained tight and prices firmed. July contract negotiations continue; producers are looking to double up on the June $0.02/lb HDPE gains and tack on a full $0.04/lb for the balance of PE products. "However, at this point it seems that the market will likely roll flat," Greenberg predicted. June PE production of 3.23 billion lb was robust, while both domestic and export sales totaled 3.13 billion lb, leading to a 100 million lb bump in aggregate producer inventories to 3.3 billion lb. Spot resin business in July has been lackluster and some believe that a moderate price decrease might be seen for August PE.
Propylene's spot market was a bit more active with several transactions concluded at lower prices early on, but then recovering by week's end. PGP for July delivery traded several times around $0.615/lb, down $0.015/lb, but bounced back to $0.63/lb by Thursday and ended the week steady. July PGP contracts rolled flat at $0.65/lb after being up $0.03/lb from May. After a volatile first half of the year, PGP contracts currently hold gains of $0.07/lb for 2013. The forward market has flattened; prices for the balance of 2013 are now mostly steady to prompt, perhaps a half-cent discount indicated by the end of the year. The refinery grade propylene (RGP) market bobbed with several transactions concluded right around $0.565/lb.
Polypropylene (PP) availability finally began to improve, contributing to the first weekly downtick in almost 3 months, although prices only eased a penny for now. Supply chain complications had led to supply shortfalls and June PP production of less than 1.3 billion lb: 150 million fewer than May, triggering a rare occurrence of spot PP prices exceeding those of contracts. "This has happened in the past, but mostly when rapidly rising monomer costs lead to massive pre-buying ahead of an imminent increase," Greenberg said. "Nonetheless, July contracts for both PGP and PP have rolled steady to June so spot PP prices around $0.80/lb have turned off all but the most urgent of buyers." The market is not awash with PP, as producer inventories drew 80 million lb in June, beginning July with just 1.45 billion lb on hand, the lowest level since January. Producers will look to leverage their current pricing power and expand margins by lifting contracts $0.02/lb more than the change in monomer. "This has been attempted in the past," Greenberg said. "We will see if they find success during August."
Final thought from Michael Greenberg
Spot resin trading continues to ramp up but after a very slow start to the month it's generally falling short of industry expectations. Sluggish summer demand, both domestic and export, has helped to increase current spot supplies, but only back to more typical levels and certain resins are still lacking in the marketplace. Resin contracts for both PE and PP should end mostly flat in July, of course producers will likely look for increases again in August. There is still a bit more time in July, perhaps a late surge in demand will help paint a brighter sales picture.