Bryan Wilks Flexible Packaging Market Update

Posted by notioneer on Tuesday, April 16, 2013

A couple unexpected cracker outages are helping Polyethylene producers keep their April $.04/lb price increase alive, but most other market participants doubt its viability. Polypropylene contracts were initially nominated to decrease $.07/lb but were ultimately marked a full $.10/lb lower, which should be welcomed relief downstream.

Material availability remains ample, as upstream inventories swelled nearly 100 million lbs to begin April with almost 3.1 billion lbs. Processors, who collectively purchased an above average 2.6 billion lbs of Polyethylene in March, seem content to wait out this increase. Export sales were soft again last month at just 560 million lbs; it was the lightest since April 2012; international Polyethylene prices remain below the level necessary to enable high volume spot arbitrage.

Propylene was less affected by the cracker outages that supported spot Ethylene. The highlight of the Propylene market was the $.10/lb lower settlement of April PGP contracts which brought prices down to $.63/lb. It was a fairly aggressive decrease and deemed more appropriate than the $.07/lb initially nominated. The forward curve slides off gently until a $.03/lb discount is achieved by December. RGP lost $.03/lb to end the week just above $.50/lb.

PP processors should be pleased with the solid dime decrease afforded this past week for April resin contracts. Processors were clearly disappointed with the inadequate decrease in March and kept orders to a minimum, securing just 1.175 billion lbs – over 100 million less than the trailing 12 month average. Exports were an insignificant 33 million lbs and together the lack of demand contributed to the sizable 111 million lb jump in producer inventories to nearly 1.6 billion lbs, the highest since May, 2012. Although contracts remain a nickel higher for the year, the quick 2 month price break of $.16/lb should spur some demand as prices return to a more palatable level.

Polyethylene producers are still looking to pad their $.09/lb 2013 gains by implementing another $.04/lb in April. As we have mentioned, with several crackers offline for scheduled maintenance, any unplanned outages could become very disruptive – indeed there were three issues this past week which reversed the falling Ethylene market and spot monomer supply remains vulnerable.

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