Polypropylene Market Update, August 20, 2007

Volume: Higher Price: Consolidating Spot Polypropylene prices have pushed about $.01/lb higher so far this month, now reaching into the low $.60s/lb. Downstream inventories are comfortable to low and US processor demand is still struggling, so this is clearly still a cost-driven scenario. The recent market has been supported by higher monomer contracts for August and resin producers intention to at least pass through their cost increase. Therefore, it is a widely expected that August resin contracts will also settle around $.015-.02/lb higher The recent slide in spot RGP prices has stalled, with the market stabilizing near $.47/lb due to the storms that caused several short-term refinery shutdowns. There was also an unrelated fire at a large refinery, which is already back online, but remains a good reminder to the susceptibility of a shortage due to supply stoppages. The monomer market had been supported by lower than average refinery utilization rates that never fully recovered from springtime turnarounds. These rates have generally been increasing over the past several weeks/months. If that trend continues, barring any further disruptions, it is anticipated that RGP prices will continue to fall further. There has been a very good flow of spot Polypropylene offers, although they have generally been priced tightly to the market in the low $.60s/lb. Even though some offers have come in priced slightly better, and seem to be a deal in this market, they are still hard to sell. Those that need the resin will certainly pay the going price, but few processors are comfortable adding to inventory positions at this price level. Polypropylene producers have managed to maintain high operating rates, bumping 100% nameplate capacity for much of 2007. Since US demand has actually been down so far this year, producers have apparently been leaning on export sales to pick up the slack. Discretionary sales, especially through traders to the export market are difficult to consummate. Export sales are reportedly still very good, so it seems that the bulk of the sales must be occurring directly. A weak US dollar has essentially placed US resin on sale especially when purchased with Euro currency. The falling dollar has lessened the affect of rising US resin prices, keeping them competitive on the world market. The US dollar has recently begun to reclaim some of its lost ground, gaining nearly 2% this past week, closing under $1.35/Euro. All other things remaining equal, European buyers can afford to pay about $.02/lb less for US Polypropylene than just a few weeks ago. This could begin to affect resin exports. Even if the Polypropylene market were to become over supplied, prices might not necessarily begin to crumble. It will likely take a reduction in monomer costs to sustain a break. With contract margins held relatively steady by the indices, resin prices apparently will not fall until monomer prices do first. (The Plastics Exchange)