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Spot Floor Summary (19,083,440 lbs)
| Resin | Total lbs | Low | High |
| HDPE - Blow Mold | 4,129,656 | 0.500 | 0.585 |
| PP Homopolymer - Inj | 4,096,196 | 0.520 | 0.605 |
| LLDPE - Film | 2,898,392 | 0.537 | 0.575 |
| HDPE - Inj | 2,573,460 | 0.490 | 0.575 |
| PP Copolymer - Inj | 1,575,000 | 0.500 | 0.600 |
| LDPE - Film | 1,300,000 | 0.505 | 0.585 |
| LLDPE - Inj | 1,150,552 | 0.525 | 0.575 |
| HIPS | 670,000 | 0.685 | 0.720 |
| GPPS | 370,000 | 0.680 | 0.685 |
| LDPE - Inj | 232,000 | 0.535 | 0.585 |
| HMWPE - Film | 88,184 | 0.600 | 0.600 |
| I hope that you have been reading our Week in Review publication on our website, so as not to have missed one beat of this exciting resin market. There have been large Q1’07 price increases nominated for the commodity grade resins, $.13/lb for Polyethylene and $.14/lb for Polypropylene. Not much had stuck to January contracts, but on average Polyethylene producers will record a margin expanding $.03/lb gain on February contracts while Polypropylene producers earned $.05/lb over the two month period – to maintain their margins.
Domestic resin demand has been weak and is the main culprit behind the limited success of producer price increase efforts. However, International resin prices, sustaining their premium to North American prices, have made for phenomenal export demand that has more than offset the domestic shortfall. The export opportunity remains open and, once again, is only limited by inadequate rail and bagging capacity in Houston.
The energy markets are still volatile. Crude Oil is back above $61/bbl, having rallied some $11 since mid January lows and Natural Gas has bounced around between $7-8/mmBtu, recently coming under some downward pressure. Ethylene contracts were $.02/lb lower in January to $.395/lb, but have yet to settle in February, and while spot Ethylene is back down to $.345 -.35/lb, contracts will likely just roll over. Propylene contracts again rose $.025/lb in February to $.4525/lb, although spot prices have begun to ease, now offered at $.42/lb looking for bids.
With some resin price increases taking hold in February, we expect upward momentum to continue into March. Processors have not been too keen to the higher prices, so we anticipate another early month standoff. Producers to date have relied on strong exports to create a snug domestic market; however, we are now entering a seasonal period of better demand. On the other hand, if domestic demand fails to improve, and/or if the export markets cool, producers might have a difficult time raising prices further. |
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Polyethylene
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| Polyethylene producers have been determined to raise resin prices while processors have shown strong resistance to the $.13/lb of price increase nominations floated since December. Processors won out in January, as weak domestic demand could not support early/mid month gains, then producers, leaning on a robust export market, gave it another go in February. Even in the face of falling feedstocks, producers have managed to move spot resin prices higher and will record on average $.03/lb price gains for February contracts. |
HDPE Blow - HIC
1 Month
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HDPE Blow - HIC
1 Year
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Even though contract resin invoices were issued + $.06/lb since the beginning of February, the market did not initially take the increase too seriously, especially when a couple of major HDPE producers went soft on half of the increase. However, as the month drew towards a close, the balance of the increases were not relieved and the Canadian domiciled film grade producers actually dug in deep to keep the whole $.06/lb increase intact. This bold stance was supported by the (recently resolved) Canadian rail strike, which forced those producers to throttle back production due to limited empty railcars which were needed to store and ship fresh production.
While processors never really appreciate receiving a price increase, this one stings sharply. Domestic Polyethylene demand is not very strong, so producers extracting this margin expanding increase while resin production costs are falling appears greedy. Resin price increases are easier tolerated when feedstocks are also rising; margin expansion is perhaps best achieved when resin price relief is granted and feedstocks fall even faster.
It is true that Polyethylene margins reduced from last year’s wide levels, but they are still decently profitable and now expanding from both ends. Ethylene contracts settled $.02/lb lower in January to $.395/lb, and while February Ethylene has not settled, spot has recently traded down to $.345/lb, again lowering average feedstock acquisition costs. With attractive margins, US Polyethylene producers have been motivated to make as much resin as possible; although as noted, domestic demand has been insufficient to clear current production.
International Polyethylene prices however, remain strong, keeping an open market for exports. Polyethylene producers, looking to tip the supply/demand balance back in their favor, have taken advantage of this alternative sales channel. The volume of exports has been huge, some 17% of total Polyethylene sales in Jan, and Feb export volume might be almost as large. So while domestic Polyethylene demand has only sputtered along, Polyethylene producers have focused their sales efforts overseas, which has more than made up for the shortfall in local demand.
While this scenario seems very reasonable, it does not sit so well with domestic processors. They see producers selling discounted Polyethylene offshore to regions with a clear labor cost advantage. This has served to tighten North American resin supply which has helped producers push through a domestic price increase. Producers claim to need the alternative sales channel to offset weak domestic resin demand; however, domestic processors complain of slow sales because (this North American) resin gets processed offshore and comes back as (semi) finished goods at prices with which they cannot compete.
Generic Prime Polyethylene film grade resins are still relatively scarce in the spot market, although we have seen a steady flow of offgrade, particularly lower quality cars, at discounted prices. LLDPE Hexene and Octene have been very difficult as has been LDPE High Clarity. HDPE Blow Molding resins have been more available and we have seen pretty good volumes of HDPE come through our market. While acknowledging the higher price level and upward momentum in the market, resellers are cautious about building inventories at these levels.
We expect Producers to take a strong stance once again in early March as they look to secure the second half of their $.06/lb increase – and do not forget there is another $.07/lb already out there. However, even given excellent export markets, it would be quite impressive if the market can continue much higher without a major boon in domestic demand. |
Polypropylene
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| The prime Polypropylene market continues to forge higher and in most cases producers have achieved their $.05/lb price increase spread over January and February contracts. It is a fair settlement, matching the $.05/lb rise in Propylene monomer over the same two month period. There are two additional Polypropylene price increases out there totaling $.09/lb; however, the spot Polypropylene market is languishing. We continue to see a steady flow of spot resin, but the cars are not clearing so quickly. Offgrade resin prices are having a hard time holding steady, let alone rise. |
HoPP Inj - 35 melt
1 Month
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HoPP Inj - 35 melt
1 Year
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It has been a long and steady effort to rally the spot Generic Prime market to current levels, and with very tight production margins, producers should be relieved to have at least covered the cost pressure. While we would expect Generic Prime prices to uptick early in March, current market conditions give dim hope for further immediate contract price advancements. This however could change as we are entering a seasonal period of heightened demand.
Producers utilized a robust export market to eliminate any potential supply overhang that could have compromised their successful implementation of this important price increase. While the export market has been strong, producers have raised export prices, making it much more difficult to send resin offshore. We also expected to see more Asian inquiries when they returned from the Chinese New Year holiday, but that market remains quiet.
Now that the price increase is secure we are again starting to see Generic Prime resins re-emerge in the market. This could be an indication that weak domestic demand has disappointed producers and excess supplies from current production do exist. The fresh prime offerings could also be some early inventory liquidations, a sign that producers foresee the drawn-out rally in Propylene monomer prices finally coming to an end and that they anticipate lower production costs ahead.
For a couple of months, Propylene monomer prices have been decoupled from Crude Oil. While they never follow tick-for–tick, as a product derivative, there is a close long term relationship. Propylene managed to maintain its strong rally even while Crude Oil fell sharply in January. Ironically, now that Crude prices have rebounded some $11/bbl, it seems that the monomer rally may have run its course. Spot monomer prices have finally eased a couple of cents, and unless crude prices really race higher, it looks like Polypropylene producers will enjoy lower production costs in the months ahead.
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Polystyrene
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| The Polystyrene market has hard a hard time rallying along with the other commodity grade resins. While producers have been able to maintain a stable market there has been very little follow though to higher contract prices. Polystyrene production continues to be tough business. After a couple of uneventful price increase attempts, producers will give it another shot as they look for an additional $.04/lb in March. |
HIPS Inj - 8 melt
1 Month
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HIPS Inj - 8 melt
1 Year
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| All important Benzene prices remain elevated, with a recent rally bringing prices back up to $3.60/gal. Continued cost pressures keep operating rates in check as producers look to control surplus supplies from developing. While there has not been an overwhelming flow of spot resin, railcars of good offgrade HIPS have been available in the high 60s, and good GPPS a couple cents lower. Producers would like to see Generic Prime prices edge into the $70s. |
Michael Greenberg, CEO
The Plastics Exchange
(312) 202-0002
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Disclaimer: The information and data in this report is gathered from exchange observations as well as interactions with producers, distributors, brokers, and processors. These sources are considered reliable. The accuracy and completeness of this information is not guaranteed. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Our market updates are compiled with integrity and we hope that you find them of value.
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