Volume: Good
Price: Higher
The spot Polypropylene market moved consistently higher all last week, as it became apparent that some of the November price increases, which after revisions now average $.08/lb, will likely become effective based on higher feedstock costs. Not much has changed here all year long. Rising Propylene costs, initially triggered by alternative demand from the gasoline market and then from planned and unplanned cracker and splitter outages, continue to be passed downstream in the form of higher Polypropylene prices.
Even though Polypropylene producers have suffered from high feedstock costs, a strong export market has allowed them to maintain high operating rates, while major indices and/or "monomer plus" resin contacts have helped producers keep minimal, but acceptable production margins. Polypropylene processors however, have had trouble passing though all of the higher resin costs. Some of these processors have experienced demand destruction, as various plastics products have been priced right off the shelves at some retailers.
While resin producers desire to maintain high operating rates, which help them make a high percentage of on-spec material and allocate fixed costs over higher volumes, there can also be a high cost to this discretionary production if the resin cannot all be sold profitably. We are very likely in one of those situations. Continually rising Propylene prices, can often be passed though to domestic contracts, but there is a tighter limit to what exporters are willing to pay for resin.
With spot RGP around $.56/lb and and PGP prices trading late last week at $.61/lb, current export prices do not allow producers to netback much more than simply their feedstock costs. At these prices, one might argue with vigor, that it is better to sell monomer back in to the high priced spot market rather than sell resin for export.
Indeed, idling a few Polypropylene production lines, would not only help keep resin inventories in check, but also help ease the monomer market during this period of constrained supply due to outages. This could eliminate the need for higher resin prices. While it is hard to discover with certainty whether this is currently happening, it seems sensible at this time for some production capacity to be throttled back. In time, we will know if operating rates have actually dropped during this period.
The Polypropylene market will likely continue to maintain upward pressure until strong Propylene monomer costs begin to ease. This could occur as illustrated above or also if refinery outages begin to resolve. The most recent issue has been at a large FCC, which happens to be showing signs of returning back on-stream. If the monomer capacity does come back smoothly, there is still a lot of inventory to be rebuilt, but at least supplies will improve, which could lead to a sentiment change.
Friday was the first time in ages that RGP prices actually fell. Although prices only came off less than a penny, it is a start. Since the Polypropylene prices have been so closely tied to the Propylene prices, activity in the spot RGP market over the next 1-2 weeks can be critical to not only the November PGP contract settlement, which have been nominated $.08-.09/lb higher, but also to November resin contracts which are now nominated $.08/lb higher.
Price: Higher
The spot Polypropylene market moved consistently higher all last week, as it became apparent that some of the November price increases, which after revisions now average $.08/lb, will likely become effective based on higher feedstock costs. Not much has changed here all year long. Rising Propylene costs, initially triggered by alternative demand from the gasoline market and then from planned and unplanned cracker and splitter outages, continue to be passed downstream in the form of higher Polypropylene prices.
Even though Polypropylene producers have suffered from high feedstock costs, a strong export market has allowed them to maintain high operating rates, while major indices and/or "monomer plus" resin contacts have helped producers keep minimal, but acceptable production margins. Polypropylene processors however, have had trouble passing though all of the higher resin costs. Some of these processors have experienced demand destruction, as various plastics products have been priced right off the shelves at some retailers.
While resin producers desire to maintain high operating rates, which help them make a high percentage of on-spec material and allocate fixed costs over higher volumes, there can also be a high cost to this discretionary production if the resin cannot all be sold profitably. We are very likely in one of those situations. Continually rising Propylene prices, can often be passed though to domestic contracts, but there is a tighter limit to what exporters are willing to pay for resin.
With spot RGP around $.56/lb and and PGP prices trading late last week at $.61/lb, current export prices do not allow producers to netback much more than simply their feedstock costs. At these prices, one might argue with vigor, that it is better to sell monomer back in to the high priced spot market rather than sell resin for export.
Indeed, idling a few Polypropylene production lines, would not only help keep resin inventories in check, but also help ease the monomer market during this period of constrained supply due to outages. This could eliminate the need for higher resin prices. While it is hard to discover with certainty whether this is currently happening, it seems sensible at this time for some production capacity to be throttled back. In time, we will know if operating rates have actually dropped during this period.
The Polypropylene market will likely continue to maintain upward pressure until strong Propylene monomer costs begin to ease. This could occur as illustrated above or also if refinery outages begin to resolve. The most recent issue has been at a large FCC, which happens to be showing signs of returning back on-stream. If the monomer capacity does come back smoothly, there is still a lot of inventory to be rebuilt, but at least supplies will improve, which could lead to a sentiment change.
Friday was the first time in ages that RGP prices actually fell. Although prices only came off less than a penny, it is a start. Since the Polypropylene prices have been so closely tied to the Propylene prices, activity in the spot RGP market over the next 1-2 weeks can be critical to not only the November PGP contract settlement, which have been nominated $.08-.09/lb higher, but also to November resin contracts which are now nominated $.08/lb higher.
