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Polypropylene Market Update in North America, September 17, 2007

Polypropylene Market Update in North America, September 17, 2007

Write: Aland [2011-05-20]
Volume: Growing
Price: Steady
Spot Polypropylene prices have softened just a tad from August highs however, the current price break might seem more dramatic to those buyers whose resin costs had previously moved into the mid-$.60s/lb. Since August price increases were not fully implemented, there has been a steady flow of Generic Prime Homopolymer offers available from some producers in the lower $.60s/lb. This spot market price has become more transparent now that September Polymer Grade Propylene (PGP) contracts have mostly settled $.025/lb lower.

Polypropylene buyers are expecting September resin contracts to settle around $.025/lb lower, in line with the monomer cost relief. Some producers however, are keen to keep resin contracts steady in September, granting a postponement on the September price increase, but no reduction. This would allow producers to nicely enhance production margins after nearly a year of stable margins, although they did already pick up nearly a penny during July/August.

Very strong Polypropylene exports, have helped keep resin inventories well in check all year long, even as Polypropylene operating rates have consistently run at/near nameplate capacity. Operating rates have recently dipped a few points while North American resin demand has begun to recover slightly. This has allowed Polypropylene producers to actually draw upon inventories and maintain a comfortable position.

Even with tight inventories, spot supplies have begun to increase. We are starting to see more offers of Generic Prime resin and from a wider base of producers. This could indicating a belief that costs will continue to ease and it is best to move incremental pounds now even at slightly lower prices.

It will be interesting to see how the market plays out in September. Even though at least one producer has just reiterated its intention to still enforce the September price increase, our belief is that the spot market will continue to ease and contracts will settle lower. After many months of favorable contract settlements keeping pace with higher monomer costs, the major indices will be hard-pressed to not pass along cost savings the very first month that contract monomer has settled lower.