The Polypropylene market is strong; spot prices have advanced about $.03/lb so far this month, reflecting the successful implementation of the October price increases. Since Propylene monomer contracts were also up $.03/lb on average, resin producers will maintain their minimal, but acceptable, contract-to-contract production margins. Additional supply interruptions sent spot RGP prices soaring another $.045/lb this past week, consequently, resin producers were quick to nominate fresh price increases ranging between $.04 - .06/lb for November resin contracts.
Processors have actively monitored the spot market, snapping up well priced offers as they have been shown. This has kept few fresh railcar offerings available by each day's end. The lack of spot Polypropylene material has also allowed distributor and resellers the opportunity to sell aged inventory into the market. Still, some processors are caught short of spot supplies and continue chasing loads to keep them in resin.
For long periods of time dating back several market cycles, $.60/lb had proven to be a ceiling for the Polypropylene market. With this recent $.03/lb price increase now becoming effective, domestic prices have now lifted through that level. However, the export market has not necessarily kept up to pace, since $.60/lb for railcars of generic prime PP Homopolymer has few offshore outlets. US Polypropylene producers had enjoyed considerably better feedstock costs than many of their international counterparts, however this advantage is dwindling.
Spot PGP monomer has recently traded at $.565/lb, so even at $.60/lb BRC (Bulk Rail Car) Houston, the export sale is now undesirable. For years, producers had seemingly viewed the export market as little more than an outlet to balance off surplus supplies to keep the domestic market tight. Although, for the past year or so, export prices have been high enough to actually make the netback interesting and for Polypropylene producers to specify certain production for export.
Recent market dynamics have again placed exports as a lesser alternative. Unless the export market supports a higher Houston sales price, or resin is sold at a loss, Polypropylene producers might need to react to margin pressure by cutting operating rates. This would help to keep supply and demand in the domestic market well balanced, allowing producers to continue passing through higher feedstock costs as they arise.
For now, the domestic market is well bid, and processors, aware of the feedstock cost pressures, have taken this October price increase in stride. Another $.04-.06/lb price increase in November may be hard to swallow, but based on the recent run in spot RGP prices, a prescription for a spoonful of sugar might be advised.
(The Plastics Exchange)