July 2012

Polypropylene had a $0.10 cpp fall in pricing during May, while June opened with a drastic $0.155 cpp reduction.

Availability in both PE and PP dried up as we progressed through July. Spot pricing actually increased during the month for many grades of PE and PP. There have been several HDPE plant outages which have tightened the availability of blow molding specifically. Also, homopolymers are being described as snug in PP. Any excess inventory was sold off at quarter-end, capturing sizeable margins considering the cost to produce monomers. Given the weakening global economy, it was also the prudent move to make. Now the US faces low availability, rising costs to make PE and price increases ahead.

Polypropylene always seems to march to a different rhythm. Low cost propane became a preferred feed for US Chemical companies in the production of ethylene. This dynamic has not played out in some time and has led to much more propylene being generated from steam crackers. Also in the midcontinent, ethane/propane mix traded at $0.04 cpg! Refineries coming off turnarounds also began to run hard to fill demand from Latin America for refined products. This led to ample supply of RGP. Lower costs in the chain however have not led to further declines in Polypropylene. Again, tight supply by managed production has prevented more price erosion.  (read full article)

While buyers have been adjusting to lower prices, the cost to make both PE and PP are on the rise. To quickly refresh the bounce we start with chemical feeds. Ethane has rebounded to $0.36 cpg, but had been as high as $0.42 cpg. The price today is still a 25% rise from the bottom. Propane, which has been plagued by very high inventory levels, also managed to move up 10%. Ethylene has risen back to $0.49 cpp representing a 22% move up. Propylene, the one product that is typically the most volatile, has settled in at $0.52 cpp. Crude is up 13% from the bottom in late June and Natural Gas continues to soar by moving up 42% since June. The current Midwest heat wave, curtailed supply and more conversions to using the gas have lifted the product abruptly.

With all of the input costs for PE production up, it is no surprise that increases are announced. Given tight availability in some products, August could catch buyers. With crude up how far behind can polypropylene lag? The excess RGP is being worked off and refiners are slowing as the demand pull for products is easing. Propane balances are correcting as we head toward heating season. Given its volatility over the past few years, it’s not hard to see the next move up on the horizon.  (read full article)