September 2012

As energy, feed and monomer markets swing daily, volatility for polyethylene and polypropylene grows and manifests itself in surprising shifts. August was a particularly interesting month for producers, with a tight supply of most resin grades in both PE and PP. Buyers however, seemed to have purchased enough inventories during the summer months to sustain themselves and avoid panicked buying. Even with delayed shipments and backlogged orders, not many converters seemed to be caught short on supply. In the export space, there remains a significant buildup of product that was waiting for packaging in the US Gulf and is now moving on the water.

Since the correction in June, propylene has been at a historically low level looking back to 2009 after the energy crash. Refinery grade propylene and propane have both been oversupplied, providing a low cost feedstock for propylene with signs of a turnaround recently becoming prevalent. The spot market for polymer grade propylene has moved from $0.47 cpp to $0.53 cpp over the past two weeks. Surprisingly, contract talks are being discussed in the flat to up $0.03 cpp range for September. If it does only move up slightly, it sets up for a greater move in October, as RGP balances are firming as runs fall. The acrylonitrile market is also picking up, which is another demand market for propylene. US Gulf propylene is in the cheapest price region of the world. It is being exported but having difficulty displacing tanker space from liquefied petroleum gases as there is also a solid demand pull for these US products by the rest of the world. Crude oil awaits Quantitative Easing 3rd Round from the next Federal Open Market Committee meeting on September 12th and 13th which we expect to continue to support the market, if not drive it higher in the near term. China and Europe also seem ready to act in the near term with supportive economic measures if needed. We can’t forget that polypropylene balances have been, and remain tight especially in homopolymers. The recent Hurricane Isaac has also added some disruption to the market by affecting production in Baton Rouge, Louisiana. Copolymer lines have been switched over to homopolymers production, causing tightness in most grades of PP. With these influences in place, the downside of Polypropylene seems limited and upside more likely. (read full article)