TPE resin pricing, May 2-6: PE flat, PP gains $0.02/lb; PP up $0.365/lb so far in 2011

The spot resin markets were slower last week, not altogether surprising since it was the first week of the month and price increases are pending. The resin market did not seem to react much to the decline in the energy and other commodity markets, according to the plastics spot-trading platform, The Plastics Exchange (TPE), although it noted that "a cautious sentiment can be felt developing."

Resin demand was subdued, but a good number of spot transactions were still completed, mostly initiated by sellers. Spot supplies were better than anticipated, with prices that were steady to higher. The market saw a good flow of material from producers, including the May price increase, as well as from resellers seeking to capitalize on warehoused inventory. Resin producers are looking to implement a $0.05/lb price increase for May polyethylene contracts and increase polypropylene prices by the change in May polymer-grade propylene (PGP) monomer contracts, which will once again, noted TPE, be steep.

Energy markets: After several weeks of strong gains, U.S. energy prices plummeted, with steep losses in oil and gas. June crude oil futures plunged $16.75/bbl, nearly 15%, to settle at $97.18/bbl, the lowest close since late February. June natural gas futures dropped $0.463/mmBtu, about 10%, to end the week at $4.235/mmBtu, the lowest close in more than two weeks. The crude oil : natural gas price ratio contracted again to 22.91, the tightest since mid-February, but still extremely wide by historic standards.

Ethylene's spot market was fairly active, with a high volume of material traded, priced in the mid-$0.60s/lb. Ethylene for May delivery traded as high as $0.6675/lb early in the week, but then changed hands at $0.65/lb by Friday, finishing about steady for the week. Some crackers went down while others were back on-stream, with the net effect on supply minimal with nearly 10% of capacity remaining offline. Scarce supplies have already placed a nearly $0.09/lb premium for prompt ethylene delivery versus material booked for the fourth quarter of 2011. The net transaction price for April ethylene was increased by $0.035/lb to $0.5725/lb.

Polyethylene (PE) spot prices gained a penny on Monday, but slid back to steady ground by the end of the week. Producers released offers for generic-prime railcars priced to include the $0.05/lb increase sought for May. Contract prices have already gained $0.11/lb in 2011. Competitive supplies of packaged PE have been made available by Houston traders and national resellers. The overall spot PE market now reflects about $0.01/lb of the current increase, by this time last month most of the increase had already been priced into the market. To provide added strength to the May nomination, additional increases, ranging from $0.04 - $0.06 - $0.08/lb have been issued for June.

Propylene's spot market was relatively quiet with just a couple of refinery-grade propylene (RGP) deals done while PGP went un-traded. RGP transacted up a couple cents to $0.935/lb, but then gave back the gains to trade at $0.91/lb where it remained offered at end the week. May PGP contracts have initially settled with an increase of $0.095/lb. If confirmed market-wide, it would bring PGP contracts to $0.97/lb, which is the price offered for PGP in the spot market.

Polypropylene (PP) spot prices continued to march upward, adding another $0.02/lb during the first week of May. Through April, PP contracts increased $0.27/lb, fueled by cost-push pressures. Based on the initial PGP contract settlement, PP contracts will jump another $0.095/lb, bringing 2011 gains to a massive $0.365/lb. Contract resin buyers have little choice but to pay well over $1.00/lb for prime railcars. Those processors that can manage to use offgrade resin can still find good opportunities to purchase material in multiple truckload quantities in the high-$0.80s/lb. Spot truckloads of prime PP can also be found in mid-$0.90s/lb range FOB Houston. TPE CEO Michael Greenberg noted that the huge spread between the spot and contract markets highlights the difference between prices based on a third party index or "monomer plus" versus pure supply and demand. "There are times when the two markets are very well-correlated," Greenberg said, "this is just not one of those times. The huge drop in energy prices last week have not worked their way downstream, as feedstock markets were mostly flat and resin prices were steady to higher." May resin contracts can rise further with PE producers looking to implement another $0.05/lb increase, while PP contracts will adjust upward based on the final settlement in PGP, which currently looks to be $0.095/lb.

Final thought from Michael Greenberg:

"Resin demand has been stifled by rising resin costs and many processors complain of their inability to pass along the increases in a timely manner. Spot exports to regions outside of Latin America are virtually non-existent given current pricing. We suggest a tone of caution with regard to purchases beyond May consumption. The energy and other commodity markets have just shown how quickly a volatile market could change direction."