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Polypropylene Market Update in North America, October 29, 2007

https://www.chemnet.com   Nov 01,2007 The Plastics Exchange
Volume: Good
Price: Steady
Polypropylene producers have a major challenge ahead. RGP prices continue to soar, making ever fresh record highs, but spot resin prices for good offgrade and Generic Prime, are having a difficult time pressing higher. Prices should already be in the mid-upper $60s/lb, but lower priced material is still available. Fresh $.06/lb price increases have been nominated for November resin contracts; those producers that had only issued a $.04/lb price increase have added another $.02/lb, bringing the increases to $.06/lb across the board. **As this goes to press, a fresh producer letter revising the November increase to $.08/lb increase has just shot across my desk.
Polypropylene market conditions during 2007 have been mostly unfavorable for both producers and processors. Producers have usually been chasing rising monomer costs, doing their best to maintain production margins. Polypropylene buyers have struggled with consistently rising resin costs, many of whom have been hurt by demand destruction further downstream.

A very strong export market has facilitated high Polypropylene operating rates, and has sometimes provided an outright better netback than domestic sales. While the weak US dollar has aided sales, unlike their Polyethylene counterparts that have until recently been enjoying much advantaged monomer costs, domestic Propylene feedstock costs have been relatively high all year.

This last run-up in monomer prices have hurt exports margins badly. With Asian resin prices now at or below US prices, not only is the arb to Asia closed, but their competitive offers are starting to interfere with US sales to South America and Europe. The new economic decision is to sell resin export at levels barely above feedstock costs or sell monomer back to the high-priced spot market and cut operating rates to keep resin supplies from building and risk the November price increase.
There has been a very consistent flow of Polypropylene made available to the spot market. Early in the month, buyers were very aggressive, snapping up as many of the well priced offers that they could find - and still beat October contract prices. More recently however, buyers have become indifferent to the higher spot prices asked by producers. Still, if history repeats itself, the major indices will likely continue to report November contract resin prices at an increased level commensurate to the forthcoming increase in November monomer contracts.

With PGP prices nominated another $.08-09/lb higher in November, it seems as if there is another difficult month ahead for the Polypropylene market. In order for the market to unwind, the resolution of refinery issues and outages must be accomplished.
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