Resin Price Report: Buyers Reluctantly Adjust to Escalating Prices

The resin rally continued the week of Feb. 5, as polyethylene (PE) gained a penny across the board while polypropylene (PP) prices climbed another two cents on the heels of a rise in polymer-grade propylene (PGP) monomer costs.

Demand from both domestic and international buyers was good, as buyers have been reluctantly acclimating to the trend of rising prices, reports the PlasticsExchange in its Market Update. There was a steady flow of off-grade railcars while producers continue to restrict availability of spot prime material, diverting surplus supplies to the robust export market. Resellers’ stocks continued to thin, though older, often-overlooked high-cost inventories are now becoming available as prices rise and losses are reduced. The major indices ultimately granted PE producers their $0.05/lb increase in January. There is another nickel on the table for February.

PGP monomer costs push up PP contract prices

January PP contracts passed along the $0.03/lb rise in PGP monomer costs, and contracts are already shaping up for a slightly larger cost-push increase again in February. Crude oil prices rallied while natural gas prices plummeted last week, pushing the price ratio out to an astounding 41:1. Parity is considered about 6:1. It is this very relationship that provides North American PE producers, who derive the vast majority of their ethylene feedstocks from the natural gas chain, with a massive cost advantage compared to most of their international PE producing counterparts, who get most of their ethylene feedstocks from the much more expensive crude oil chain. The cost advantage, which became firmly entrenched during the shale revolution, was the underlying basis for the massive petrochemical/PE plant investments and capacity expansions seen over the past decade. North American PE producers can essentially export resin to any world region at will and they continue to utilize this position to keep operating rates relatively high as they export ever-growing volumes of resin year after year. In 2023, PE exports averaged 2.204 billion pounds per month, which is, coincidentally, one million metric tons.

Soaring export market supports PE producers’ pricing power

December 2023 exports were a record 49.7% of total PE sales. By contrast in 2013, PE exports were only 7.881 billion pounds, representing just 20.4% of total PE sales. The ability to export massive amounts of resin also allows PE producers to purge surplus material into the export abyss to help rebalance supply/demand when a burdensome overhang develops, which is one of the main factors that supports PE producers’ general pricing power, writes the PlasticsExchange.

PE trading was swift last week, as spot availability tightened. Prices creeped up another penny because the insatiable export market has been willing to pay more for resin while also soaking up surplus supplies. The PE market seems tailored for a rally, as international resin prices continue to rise, supported by escalating overseas freight costs. That lifts the Houston net-back price and further buoys the bottom of the domestic spot market, according to the PlasticsExchange. Not only do US producers have a feedstock cost advantage, but now also enjoy a favored location and cheaper and faster freight when shipping resin to Europe and the east coast of Latin America, both affected by logistics constraints in the Red Sea and Panama Canal.

Ready-to-ship Prime PE resins lacking

Most commodity-grade PE resins have become outright tight, as producers have cunningly managed this dynamic environment, diverting incremental pounds to offshore buyers while pent-up demand takes hold in the United States. The PlasticsExchange sees a notable lack of ready-to-ship Prime resin, especially high-density PE for Blow Molding and Film; even Injection grade is becoming snug. Low-density and linear-low-density PE film grades have also shifted from loose to tight. If conditions persist, upward market momentum could encourage producers to truly dig in to pursue their February increase, according to the PlasticsExchange.

The PP market continued to rise and spot prices popped another $0.02/lb, fueled by escalating monomer costs. Demand was good, but well-priced supplies of Prime and good off-grade were scarce, which limited completed volumes at the resin clearinghouse this past week. There has been a continued flow of mostly undesirable low flow and transitional resin selling under monomer, but a number of resellers seem to be caught short of railcars to deliver and are scooping up high-quality off-grade railcars before they hit the general spot market.

Force majeure adds fuel to bullish market

Adding to the bullishness is the Ineos force majeure, which remains in place at its Chocolate Bayou complex in Texas. Another producer has also put the brakes on all its Generic Prime sales because of monomer shortages, further tightening PP availability.

Producers seem to have learned a good lesson last year, when they continued to run their reactors hard amid a shortage of monomer, which drove PGP prices sky high but crushed PP demand along the way. The end result was compressed margins during the Q1 2023 rally caused by over production and reduced demand. Once the monomer market busted at the end of Q1, they eventually sold their high-cost resin at drastically reduced prices in Q2.

It is a different story this year, although the market faces another spate of disruption-induced PGP shortages and rapidly rising monomer costs. PP producers instead are keeping resin reactors throttled back significantly, which has tightened supplies and is turning pricing power back into the hands of sellers. It has been a while since a real margin-enhancing price increase has stuck, but there is a very good chance — more likely than not — that in addition to the imminent cost-push increase this month, some or all of the extra four-cent increase nominated for February could also be implemented.

Read the full Market Update on the PlasticsExchange website.