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Market Update
1/27/04
www.ThePlasticsExchange.Com


Polyethylene

Polyethylene prices have advanced firmly since the beginning of the year. Limited producer offerings, reinforced by higher energy/feedstock costs, have influenced buyers to accept the December $.04/lb contract price increase without great resistance. Spot PE prices have been moving about a penny higher in each of the last 4 weeks and are now about equal to these higher contract prices. Producers have nominated another $.05/lb price increase for February. This would total 14 cents of increases since the summer lows.

Our spot market continues to be very active, moving towards true liquidity. Railcars of prime HDPE inj grades are trading in the low-mid 40s. HIC blow molding supplies have tightened; after being a market laggard during the fall, prices have moved 3-4 cents higher; railcars are now priced around 40-41. LLDPE Film grades are trading in the low-mid 40s with premiums expanding between Butene, Hexene and Octene grades. LDPE film resin is trading in the mid-high 40s also with full premiums achieved for Liner, Clarity and EVA grades. Widespec PE is available at discounted prices but the price difference is not as large as in steady or falling resin markets.

Distributors and resellers smartly increased inventories pre-price increase. Since the price increase was cost-push rather then demand driven, their inventories increased nicely in value but not every pound necessarily had a purchase order against it. Processors have been good buyers during January and those looking for cheaper alternatives to their higher contracts were able to find supply in the secondary market. Then as the spot market moved higher, especially after the Feb price increase was announced, reseller replacement costs from producers increased and so did their selling prices. So while some good deals could still be found, these opportunities are now limited.

Crude oil has just made new highs for the season and is now trading around $35/barrel. Natural gas has been extremely volatile ever since the winter weather became the market's focus. Those prices have twice shot up to $7.50 m/Btu which is a full 50% than higher than the $5 prices during the fall. During the last couple of weeks, natural gas prices sold off sharply to under $5.75...but that is still almost 3 times the prices during the 1990s, and we have often seen fast reversals in that market.

With natural gas and crude oil prices relatively strong, ethylene prices have increased as well. In the past 6-7 weeks, spot ethylene prices have rallied sharply from about $.20/lb to $.28-29/lb. These higher costs reduce plastics producer's profit margin and subsequently their desire to manufacture and sell extra spot resin as they work to maintain higher resin prices.

US extruders have been complaining about imported bags flooding the market with non-competitive prices. They will now get some relief from a new punitive tariff imposed by the US Department of Commerce on bags made in China, Malaysia, and Thailand. This should increase resin demand have a real impact on the US film grade Polyethylene market as US extruders regain their domestic market share. The tariffs are temporary, but could be made semi-permanent after the International Trade Commission performs an investigation.

Going forward into February, plastics producers will likely act in a similar fashion as they did in January. Expect them to begin by offering small volumes of spot resin at slightly higher prices, then if they get purchased, more small quantities will be offered at still high prices until the entire 5-cent February price increase has been reflected in the spot market.

The market will continue watching energy and feedstock costs to determine if the cost-push price increases are warranted. If we do not see the run-away natural gas market that we did last year, this next price increase will have trouble with implementation. Even though overall demand is better from a revived US economy, the commodity plastics market has a certain level of elasticity and could only handle a limited level of price increase. Many large quantity commodity applications just do not make sense with Polyethylene prices starting with a 5, and with another price increase, we will be approaching that level in the generic market.


Polypropylene The US Polypropylene market has been very strong. Squeezed by soaring feedstock costs, US producers have been tough on price and easily enforced their January $.03/lb price increase. Propylene monomer has gone from $.20-22/lb to $.28-30/lb over the past 6 weeks and even at the higher prices, spot monomer is limited.


World PP prices have been rallying so the US market has been driven not only by domestic demand but also from overseas buyers. The quickly falling US dollar have effectively put US goods and raw materials on sale, especially to European and Asian buyers. The falling dollar has allowed US manufactures to become more competitive on a global basis and has been a good stimulant to the recovering US economy.

Very good Polypropylene demand and limited supply seems to have caught some traders and large buyers off guard. The big buyers that bought ahead did not chase the market early, but have been paying up in the spot market before their price protection expires next week. With some producers limiting customer purchases to control against more pre-buying, we are seeing some buyers pay higher for spot railcars than they are paying for their direct contract allotments.

After trading discount to contract in Nov and Dec, some grades of Polypropylene have advanced even in excess of the price increase and are trading at a premium to contract. Homopolymer is extremely tight; in fact it has almost achieved Copolymer prices, which normally carries at least a 2-3 cent premium. Since the beginning of the year, spot Copolymer is up about 3 cents while Homopolymer is up 4-5 cents. There is another $.03/lb Polypropylene price increase on the table for February; based on market action, implementation is more likely here than it is for Polyethylene.



Polystyrene The spot market here is very tight and prices have moved higher. Producers have a good handle on inventory levels and discretionary spot offers have been sparse. Good HIPS cars disappeared towards the end of December and surprisingly few showed up in January, even with prices reflecting the $.04/lb price increase that was implemented January 1st. We are seeing processor usage a little soft, but the fear of higher prices keep buyers attentive as they wish to keep their resin inventory buffer adequate.


Styrene Monomer prices have moved aggressively higher and this has prompted producers to issue another $.04/lb price increase for February 1st. Producer margins have been squeezed and not only here in the US, Polystyrene prices are higher around the world, especially in Asia. Strong international demand has helped keep PS imports away from the US market and present export opportunities for surplus HIPS/GPPS if there was any.


Sincerely,

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 interviews 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.

Chart values include estimated delivered prices to the end user; including LTL, truckloads, and hoppercars blended averages


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