Polymer Market Update in North America, July 23, 2007

It was a busy week for the spot resin markets. Trading activity has unfolded in much of the way that we anticipated it would in July. After a slow holiday week started this 3rd quarter off with a whimper, large volumes of Polyethylene offers, priced the full $.05/lb higher, began to show during the 2nd week of the month. Domestic processors in need of spot resin began paying up modestly, as they competed with slowing, but still good export demand for spot supplies. As we thought, without major supply disruptions, it would be difficult to gain a full price increase in July, and buyers have indeed resisted. This caused many of the 2nd week's offerings to accumulate unsold, bulging our active spot floor availability to almost 40 million lbs. By the middle of this past week, those producers and traders intent on selling their resin, started lowering offers by a couple of cents to more realistic and transactional levels. The energy markets had yet another week of divergence, Crude Oil prices rallied another $1.66/bbl on supply concerns and dollar weakness, to end the week at $75.79/bbl. Natural Gas, a more domestic market, fell another $.22/mmBtu this week to close at $6.46/mmBtu on Friday. This after rebounding $.22/mmBtu from contract lows made earlier in the week. RBOB futures ended the week at $2.165/gal down about $.06/gal for the week, this however was well off earlier week lows, that were just under $2.08/gal. When the RBOB market had traded to its lows, the alkylation values were running back down into the higher $.40s/lb, near the level of Propylene. When the values invert, more Propylene production would be encouraged rather than diverted to make gasoline octane booster. Polyethylene producers are leaning on low inventories from good export sales while they peer at rising monomer costs in July as they gauge their fundamental position and stance during contract settlement negotiations. They are seeking a $.05/lb increase, they might settle for something less. Polypropylene producers will likely achieve another margin saving price increase commensurate with the $.0075/lb increase initially agreed for July PGP contracts.
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