Market Report May 6

by | May 6, 2020

Spot resin trading was mixed. Polyethylene business improved but was offset by slower Polypropylene sales. Overall spot prices ended mostly steady, though there was deep producer discounting along the way to help improve month-end sales; it remains to be seen if one-off deal levels will return in May. Average PE contracts saw a $.04/lb decrease in April while most PP contracts declined 2-cents. In an effort to combat over supply, resin producers have begun to reduce production by either throttling back reactor rates or as we suggested the need last week, the actual idling of plants. Resellers continue to shed their inventoried stocks while also seeking back to back orders. Though recognizing the current advantageous price level, most believe there is still plenty of time to buy and replenish their inventories. Houston prices were soft as sellers chased limited demand amid the pandemic led slowdown and cost-based shifting of supply channels. Contributing to general market anxiety and economic uncertainty, growing geopolitical tension between the US and China concerning Covid-19 fallout and blame has caused pause from some resin buyers in the Far East fearing possible retaliatory tariffs.

After an unprecedented week which saw WTI Oil futures trade into negative territory, the major energy markets began to slow their very volatile ways, though the front month June WTI Oil contract was an outlier, moving around in a full 100% range. WTI started out lower, but then rallied throughout the rest of the week with prices seeming to stabilize in the high teens. By Friday’s close, June WTI had settled at $19.78/bbl, up $2.84/bbl, about a 17% gain. Brent Oil rolled to July and transacted in a $6/bbl range, it ultimately added $1.63/bbl to $26.44/bbl. Natural Gas futures trading was largely uneventful as prices were bound between $1.80 – 2.0/mmBtu, with the upper boundary providing strong resistance. The June Nat Gas contract ended the week just a half-cent lower at $1.89/mmBtu. NGLs were mixed; Ethane scored back-to-back weekly gains, rising $.016/gal to $.174/gal ($.073/lb), while Propane chalked up another loss, shedding $.014/gal to $.326/gal ($.092/lb).

 Activity in the monomer markets picked up a touch, volume was healthier, and prices moved in opposite directions. Ethylene trading took a back seat to Propylene, but finally found support after weeks of pressing into lower levels. There has recently been limited interest in front month monomer trading and April Ethylene expired this past week without a visible transaction. On Friday, May officially took over and material for delivery later this month changed hands at $.1025/lb. This nearly $.015/lb bump was a 15% increase from prior week’s settlement. There was heavy turnover in the deferred months with high volumes of Ethylene transacting for later in 2020. The forward curve is in contango, as each month rises essentially to cover the cost of carry. Propylene interest was active from the get-go, deals were finalized daily and mostly for future delivery, including 2021, rather than prompt. Throughout the week sellers hit bids while large offers pressed the market to the downside. Spot PGP rolled to May and settled Friday at $.22/lb, a $.02/lb loss on the week. The PGP forward curve is also in contango with a modest upward slope through the end of next year. April PGP contract negotiations concluded, and the settlement was announced midweek at $.26/lb. This was a two-cent decrease from March and right in line with our expectations. The spot market is already starting to price in a decrease for May and with the government stay at home orders beginning to lift, gasoline demand is expected to pick up, this could increase the amount of RGP that is a byproduct of refining and further pressure PGP prices.

 

The spot Polyethylene market ended April and began May with surprisingly good activity amid the difficult economic environment the plastics industry is still wading through. There was heavy a flow of railcar offers as producers sought sales for their excess output, domestic or export, given reduced demand from many of their normal processing customers. Our trading desk managed to close a high percentage of opportunities presented, bringing completed volumes above the short-term average and closer to our normal market figures. Processors have been shrewd, only ordering small quantities, expecting lower prices ahead, and in most cases being very aggressive with low-priced bids. However, most grades held steady this past week, supported by news that Dow will idle three Polyethylene plants for at least one month to help balance against lower demand (and diminishing storage space). We expect other producers to follow suit to at least a certain extent, which may help to curb this price slide. A $.04/lb contract price decrease seems to be solid for April PE contracts and the battle for May begins – processors are calling for another $.03-.04/lb decrease. The export market continued busy, though prices have fallen sharply to compete with new low crude oil-based monomer costs which feed international resin producers. The global Polyethylene market is still trying to find a bottom.

Polypropylene trading was slower this past week, supply was ample, but buyers were conservative, and spot prices ended flat with a weak undertone. Of the transactions completed, truckloads outsold railcars as processors continue to buy in reduced volumes. April Polypropylene contracts will mostly settle down $.02/lb with potential variance based on the index / metric as producers have tried to implement a small margin increase. Our HoPP sales outpaced CoPP and Prime was favored over widespec as the contract decrease has helped narrow the spread. Upstream resin inventories jumped 40 million lbs to begin April but remain historically very low after reducing 355 million lbs over the previous five months. The market awaits a normalization of demand which could begin to develop as shelter in place orders begin to ease. Still, Polypropylene prices seemed poised to slide further in May as spot monomer levels already point to a potential cost-based price decrease.

Shannon Industrial is a unique business with over 50yrs experience in the plastic industry. Shannon’s Beliefs have always been loyalty, growing relationships, and providing the best possible service based on those relationships. With Shannon’s 65,000 square foot warehouse, and 38 car rail siting we have over 3 million pounds of material on hand. Material’s ranging from Commodity resins to the most obscure exotics. Shannon can accommodate orders and execute delivery on a moment’s notice.