[News] TPE North American resin pricing, Oct. 4-8: PE and PP down; early headwinds against October contract increases

By PlasticsToday Staff
Published: October 12th, 2010

Market overview: Resin market activity improved last week, although total spot availability dropped significantly from month-end levels. Spot-trading platform, The Plastics Exchange (TPE), noted that while producer railcar offerings dropped in the first week of October, resellers were eager to satisfy buyer resin requests from their warehoused inventories. Overall commodity resin prices were soft, with most grades of polyethylene (PE) having eased between $0.005-$0.01/lb, while polypropylene (PP) prices shed another $0.005/lb.

Energy markets continue to move in opposite directions, as November crude oil futures climbed further, adding $1.08/bbl to settle at $82.66/bbl on Friday. Natural gas futures, however, continued to unwind, dropping another $0.146/mmBtu to end the week at $3.651/mmBtu. The crude oil : natural gas price ratio expanded beyond 22.5:1, the widest level in over a year. This cost difference benefits North American ethylene and polyethylene producers that derive some 65%-70% of their feedstocks from the natural gas chain. Their international counterparts derive the majority of their feedstocks from the more costly crude oil chain.

Ethylene prices edged higher last week in limited trade, with monomer for October delivery up a quarter-cent to $0.3575/lb. Spot continues to transact at a discount to ethylene's net transaction price (NTP), which is a major component to monomer contracts. The September NTP for ethylene settled at $0.39/lb, a rollover from August. NTP for October has yet to be formally discussed.

Polyethylene (PE) spot prices began the month with a downtick, even though material availability was limited. The September $0.05/lb price increase remains intact for PE contracts and October negotiations are already setting up to be contentious. Producers are seeking to raise prices by another $0.04/lb, while processors, many of whom were displeased with this last margin-enhancing increase, are looking for price relief. Low-density polyethylene (LDPE) supplies are starting to appear, while high-density (HDPE) blowmolding availability has increased, but at higher prices, and linear low-density (LLDPE) film grades are currently spotty.

Fully integrated PE producers are enjoying a huge cost advantage due to the sharp deviation between natural gas and crude oil prices. This has helped them build a strong base of direct exports that seem to flow freely, even when the large volume arbitrage is shut off in the spot market. Even in a relatively weak month, exports still account for some 20% of total North American PE sales.

Exports might start to get an added boost due to the recent weakness in the value of the U.S. dollar, which is once again flirting with the $1.40/euro level and also at 15-year lows vs. the Japanese yen. This effectively puts US material on sale when paid in these foreign currencies, according to TPE.

Propylene's spot market was quiet last week. A lone refinery grade propylene (RGP) transaction reportedly changed hands at $0.46/lb, down $0.0025/lb from the previous week. Once again there were no spot polymer-grade propylene (PGP) trades recorded, although material was readily offered at $0.575/lb with no takers. October PGP contracts have begun to settle with an early agreement reached at $0.585/lb, which is a $0.015/lb decrease from the September contract price.

Polypropylene (PP) spot prices slid about $0.005/lb last week, as railcars of generic-prime homopolymer have shed about $0.02/lb from their September peak, are now offered in the high $0.60s/lb. Resin producers nominated as much as a $0.03/lb increase for October contracts, but the lower initial settlement for PGP contracts indicates that October PP prices will instead move lower. "Indeed, the spot market was a very good indicator of such over the past several weeks," TPE CEO Michael Greenberg said. "The widespec market remains soft, with nice discounts offered for this material and for exports which are tough to move."

After implementing large price increases for September contracts, Greenberg said that it seems producers will run into "stiff resistance" with any October increases. "The spot market is currently under pressure, but there is no indication that the market could encounter a steep sell-off at this time," Greenberg said. "Overall resin supplies are relatively slim, but it still seems that part of the last increase could be relieved this month." —mpweditorial@cancom.com