The Polyethylene market was busy this past week. Early on, we saw several large groups of Generic prime offerings that overshadowed the normal flow of good widespec railcars. With the Polyethylene price increase held off for two consecutive months, overall market sentiment has been bearish and sellers have chased purchase orders. While technically the market still looks weak, it is hard to view record upon record oil prices and not think that the resin markets will soon be affected. Indeed, as the week wore on, buyers, particularly those that have been drawing down inventories, became more aggressive and began purchasing some of these offers.

HDPE Inj - Pail

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HDPE Inj - Pail

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While the Polyethylene business has been very good, producers are now getting pressured by rising Ethylene costs. A series of gulf storms along with several planned outages have hurt production and are limiting Ethylene supplies. In the past couple of weeks spot monomer prices have increased about $.05/lb, to trade above $.50/lb on Friday. If the strength continues, it is likely that Ethylene contracts will move higher in October.

While the Ethylene market is now strong, some people expect the current supply shortage to resolve and for monomer prices to be lower in 2008. We are only about to enter the 4th quarter, and plenty can change even before we even begin the new year; however, the forward curve is currently in backwardation, which calls for prices to ease as time moves on.

Citing rising costs, comfortable inventories and strong overall demand, producers have reiterated their intention to raise Polyethylene prices in October. For the third time, they will again seek to implement a $.04/lb increase. Previous price increases through July were facilitated by strong exports that helped keep producers' inventories low; however, momentum was lost during August when European traders and businesses took a holiday. Around this time, we began seeing an increase in exports to the South.

From a US perspective, while European demand has astonished, Asian export demand did not really develop this summer to the extent that some observers had anticipated. While overall exports have been very strong, North American producers had to lower prices in August to remain competitive with Asian offers. Instead of adding to demand as in past summers, Asian traders have also been on the sell-side to Europe and South America.

We are now entering a seasonal period of heightened domestic demand. Prior to the US dollar taking another turn lower, it was questionable whether the domestic market itself would be able to sustain this price level. With the arb re-opening, the challenge might not need to be met. Since resin producers are expected to make a strong push to implement their $.04/lb price increase in October, a little buy-ahead protection is advised during this coming week.

Spot Polypropylene prices moved a tad lower this past week, as good offgrade railcars became lost in a sea of Generic Prime offerings. Not all railcar offers were fresh from producers, but also came from traders that had made purchase commitments earlier in the month. While domestic demand has improved, it was apparently not enough to move all that has been available. Some of these offers might soon seem to be a deal, as producers, concerned about the potential for higher monomer costs ahead, have re-issued their intentions to raise prices for October resin contracts.

HoPP Inj - 20 melt

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HoPP Inj - 20 melt

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Spot Propylene monomer prices were expected to ease into the 4th quarter as refinery issues were to continue resolving. Refiners however, were again forced to shut down some capacity as Hurricane Humberto came through the region. With the price of Crude oil at record levels, refiners are getting squeezed and they will do their best to pass along higher costs downstream to the monomer and resin markets.

While RGP prices have firmed, stopping the slide and rallying a couple cents to around $.47/lb, they have not at all kept up with the rise in Propane, its feedstock. Propane prices have increased about 15%, from $1.16/gal to $1.34/gal in just the past month alone.

Polypropylene has been a difficult trade. Resin buyers have been expecting a better break in prices than the market has afforded. Some have continually come to the market to buy resin at prices that have just not been available. Those that have had little staying power have ordered fresh cars at the best available price, while others that have waited too long have actually paid up for spot loads to keep them going

We have seen good consolidation in spot Polypropylene prices, both domestic and export. Export sales through traders remains challenging, although large volumes are passing offshore direct from producers through their major channels. There is a price increase nominated for October resin contracts and we feel that the Polypropylene market will continue to take direction from Propylene monomer contracts. Current talk is for a $.01/lb increase, but it is still early.

After giving back a few cents from an early summer cost-induced price increase, the spot Polystyrene market has again stabilized. Spot offerings have increased somewhat, but they are not overly abundant. There has been a fairly steady flow of good offgrade railcars, along with some lower quality railcars that are usually well discounted to the market.

HIPS Inj - 8 melt

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HIPS Inj - 8 melt

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Record high Crude oil prices can lend strength to the Benzene market. If so, Polystyrene prices, which have been closely tied to feedstock costs, can return back towards summer highs. Supplies are such that producers should have little problem holding back spot resin if the market needs support.