Resins in North America - TPE Price Trends

16 Apr 2010 • by Natalie Aster

Polyethylene (PE) spot trading was quiet at month-end before prices firmed $0.01/lb late in the week as April began and market participants saw yet another price increase on the horizon. Producers, pressured by rising monomer costs, successfully raised March PE contracts by $0.06/lb, according to spot-trading platform, The Plastics Exchange (TPE). TPE CEO Michael Greenberg said a new $0.05/lb nomination is currently on the table for April, as producers look to further pad the $0.18/lb in gains they've achieved so far in 2010. In the other direction, Greenberg noted that the high U.S. PE prices have caught the attention of international resin producers and some import offers have been floating around the market. "While some polyethylene import transactions have been seen," Greenberg said, "the volumes have been low."

Between January and February, the net transaction price (NTP) for ethylene was up a total of $0.095/lb, and it has initially settled $0.05/lb higher for March. If that March increase takes hold industry-wide, the ethylene NTP would have risen $0.145/lb during the first quarter of 2010 vs. the $0.18/lb gain seen in contract PE prices, for a net contract margin increase of $0.035/lb. While producers may have fared well in the contract market during the first quarter, the spot market proved to be very difficult.

A series of planned and unanticipated cracker outages that brought operating rates down near the 80% level, caused a severe shortage in monomer supplies and drove spot ethylene from a shade under $0.37/lb at the start of the year to as high as $0.70/lb for March delivery. During this same time the once-booming export market faded, which reduced overall PE demand, and for the first quarter, spot PE prices only managed a $0.16/lb gain. Generic-prime high-density polyethylene (HDPE) blowmolding prices ended March at $0.70/lb, completely wiping out spot margins.

Scarce monomer supplies and the associated rising costs, along with weakening exports and poor spot margins, forced an added level of discipline for PE producers, according to TPE. "Resin production during the first quarter of 2010 was restrained to best match contract and forecasted sales, thus limiting the buildup of producer inventories," Greenberg noted. "This positions producers well as they seek to maintain pricing power even as monomer costs are forecasted to fall for the balance of year."

By the middle of March, ethylene production issues began to resolve and operating capacities increased back up to around 92%, easing spot monomer prices and material for April delivery to as low as $0.53/lb. Greenberg said that it appeared that the PE market was at its peak, but then ethylene for April delivery, "practically inexplicitly", spiked once again. On April 1, spot prices reached an "astounding" $0.73/lb, according to Greenberg, marking a new high for the year. May delivery also traded higher last week, but at $0.58/lb, it's a $0.15/lb discount to April. "While the April $0.05/lb price increase did not seem possible 1-2 weeks ago," Greenberg said, "the fresh run-up in spot ethylene does give cause for attention."

Polypropylene (PP) spot prices added $0.03/lb last week as the market acknowledged the likelihood of some April price increase taking hold. The spot PP market gained $0.02/lb over contracts in March and climbed another $0.02/lb during the first days of April, already pricing in $0.04/lb of the nominated $0.11-$0.13/lb in increases. Contract PP prices were up $0.15/lb during the first quarter of 2010, supported by the same gain in contract polymer-grade propylene (PGP) prices.

Prime resin prices quoted in the $0.80s/lb and $0.90s/lb have made the spot market for PP "very challenging", according to TPE, with PP approaching the all-time highs reached during the 2008 hurricanes. "Some processors are opting to shut down lines as they are unable to pass along the magnitude of increases to their customers," Greenberg said. "Railcars of offgrade material continue to flow and are priced near the cost of spot monomer; it is hard to believe that material priced in the $0.70s/lb is actually a good deal."

Volatile natural gas liquids (NGL) prices have provided crackers with a more balanced slate of feedstocks to crack profitably. By increasing the volume of heavy feedstocks rather than predominately light feedstocks, TPE noted that more propylene is finally being manufactured. The spot refinery grade propylene (RGP) market has felt a little downward pressure from added supply and is transacting around $0.585/lb. Spot PGP monomer prices, meanwhile, reached a high of $0.79/lb in March, and have most recently transacted down a couple cents at $0.74/lb for May delivery. April PGP contracts have been nominated to increase $0.11/lb over the March price of $0.685/lb. April resin contract prices will likely rise in conjunction with the increase in PGP contracts, although a growing contingency of PP producers is seeking an extra $0.02/lb over the monomer increase.

High prices for U.S. PP have restricted export sales to limited markets in Mexico and Latin America, with small volumes of low-quality material still making its way to the Asian region but in lower volumes. PP imports have greater interest as offers of prime material from both Asia and the Middle East are priced attractively. While some will make its way into the U.S., it is more likely that greater volumes will replace U.S. sales in Latin America, according to Greenberg.

Source: Plastemart

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