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Weekly resin report: Benchmark PE grades hit lowest price levels in a decade
Commodity resin trading was solid, but not spectacular, and prices remained under pressure. While processors are pleased with the 4th quarter contract price relief including $.06/lb for PE and $.18/lb for PP, and some restocking has occurred, there is still a waft of caution in the air and sentiment has yet to turn back from Bearish. Producers have floated a Jan PE increase to reverse their fortunes, but we do not see a lot of traction that points to an immediate implementation. Still, if energy prices continue to recover and record exports accelerate, we could see an inflection point develop. Overall PP supplies are categorically tight and spot resin often trades at a premium to contracts, so even though PP contracts essentially follow PGP monomer, producers again wish to earn some margin expansion.
The major energy markets scored a second consecutive week of gains. WTI Crude Oil began the week under pressure, but a Tuesday rebound set the stage for a nice rally. The March futures contract ultimately added a net $2.23/bbl to settle Friday at $54.04/bbl. Brent Oil saw similar results, picking up $2.22/bbl to $62.70/bbl. Nat Gas futures soared; it opened the week with nearly a $.50/mmBtu gain and reached as high as $3.7/mmBtu, before tailing off to finish the week at $3.482/mmBtu, still a huge net gain of $.383/mmBtu. NGLs had very little price activity - Ethane remained unchanged at $.30/gal ($.126/lb), while Propane had a small fractional loss to $.6675/gal ($.189/lb).
Trading was tepid in the monomer markets as visibly completed volumes were low and general participation was somewhat lacking. Ethylene business peaked midweek and it garnered enough buyer support to lift prices back over $.19/lb, for a penny gain. The $.02/lb premium that Choctaw held over Houston relinquished, as prices in both locations moved towards each other in convergence. PGP opened the week quietly and remained somewhat silent until Wednesday when multiple transactions came together and high volumes changed hands. Participant interest remained in the forward months and prices continued to firm in notable fashion, while prompt Propylene needs again faded away and levels stalled around $.375/lb. PGP negotiations are now in full swing with January decrease discussions ranging from $.01 - .03/lb and gravitating towards the midpoint.
Spot Polyethylene trading was very good, though activity subsided from the rampant pace experienced in the previous week. Completed volumes reverted back to slightly better than average levels as processors seem to have already covered their urgent needs, but some rail delays and related demand persisted. Resin availability was good, and our market was very liquid, as most commodity products were relatively easy to source. Our Polyethylene prices dropped $.01-.02/lb across the board, pushing all of our benchmark PE grades to their lowest levels in 10 years. There is a $.06/lb price increase nominated for January contracts as producers attempt to recoup what was lost during November and December. However, even though spot and contract could deviate from each over, given that the market has continued to weaken even during a traditionally buoyant month like January, we feel that a timely implementation of the $.06/lb increase is now unlikely. Export interest has been very strong as the world recognizes value in North American resin in terms of both price and availability.
Polypropylene trading was unable to keep up with the swift pace of the previous week and prices slid another cent. The flow of offers was a bit sporadic, partially due to a lack of speculative imports since the domestic market nosedived in the 4th quarter. While both buyers and sellers repeatedly came to the table, transactions were sometimes hard to complete and often separated by unrealistic price expectations. While there are good deals to be had for railcars, they come and go quickly and are not necessarily repeatable for those slow to pull the trigger. As we see in falling markets, cheaper resin is coming, but buyers tend to want it for immediate truckload shipment, while suppliers with inventory on hand wish to be rewarded for maintaining spot availability, or at least not get punished with a loss.