Monthly Resin Report: Fresh Signals of Economic Distress

The month of October witnessed fresh signals of economic distress, both domestically and globally, after previous months had generated some optimism about a potential market turnaround. Purchasing Managers Index (PMI) data from the Institute for Supply Management (ISM) showed manufacturing activity declining for a 12th consecutive month, with the chemicals sector falling for the 14th month in a row.

The PMI reading declined from 49 in September to 46.7 in October, a steeper than anticipated downturn. Any reading above 50 indicates expansion while readings below 50 indicate contraction.

While October data is not available yet, September data showed a month-on-month decline in domestic sales for both polyethylene (PE) and polypropylene (PP), with PP sales dropping 6.2% month-on-month while PE sales decreased by 9.1% over the same period. Low-density (LD) PE sales saw the fastest rate of decline at 10.4%, while linear-low-density (LLD) PE witnessed the slowest reduction at 8.5%.

Domestic demand slows

PE contracts for October settled flat after two consecutive increases of 3 cents/lb were implemented in both August and September. Slower demand from the domestic market blunted momentum from the prior month’s increases while availability was sufficient for almost all grades, even for some that had experienced tightness in the secondary markets in previous months.

Overall PE operating rates slipped to 88% in September from 95% in August, with strong export sales allowing producers to maintain elevated operating rates in spite of depressed demand. Export sales weakened by 6.1% month-on-month in September, but they are up 26% year-to-date through September.

US ethane-based integrated PE producers continue to enjoy a significant cost advantage over competing naphtha-based assets in Asia and Europe, ensuring that US product can be offered competitively in almost all major export destinations. Furthermore, several large international producers have been running US assets harder while scaling back rates at less profitable assets abroad to maximize profitability across their global asset base.

Global recessionary conditions dampen international demand

International demand remains poor, as most major export destinations are experiencing recessionary conditions. A hoped-for rebound in Chinese buying activity following the China National Day holidays in early October failed to materialize, further lengthening global supply and depressing international prices, especially as Chinese traders and distributors started offering re-export cargoes into the global markets.

In the PP market, October witnessed a second consecutive month of contract price increases, with contracts rising 4 cents/lb in line with an equivalent rise in same-month polymer grade propylene (PGP) prices. Efforts to raise adders for PP over PGP costs were unsuccessful as supply is long while demand remains subdued.

PGP costs moved upwards in October amid ongoing supply shortages stemming from unplanned outages at a few propane dehydrogenation (PDH) units as well as a heavy feedstock cracker and metathesis unit. These outages brought down propylene supplies and inventory levels, even as demand from PP and other derivatives remained soft.

Operating rates slip

Average industry operating rates slipped from 79% in August to 73% in September and have not breached the 80% mark since July 2022. While PE producers are able to maintain high operating rates through exports, US PP producers lack the persistent cost advantage enjoyed by domestic PE producers, with rising propylene costs over the past two months making US exports less competitive in overseas markets.

Suppliers active in the secondary markets domestically are also struggling to raise PP prices by an amount sufficient to cover the 7.5 cent/lb rise in PGP costs over the past two months. Good quality homopolymer wide-spec cars are currently trading at levels close to monomer values while premiums for generic prime over PGP have also narrowed.

About the author

Zachary Moore of ICIS has 14 years of experience researching and analyzing the petrochemical markets. His primary area of expertise is in commodity polymers, but he has also covered olefins, aromatics, and intermediate chemicals used in polyurethanes. Moore returned to the United States in 2016 after working overseas for 10 years in Asia and Europe and has been responsible for covering the North American polyolefins market since 2017. ICIS, a division of RELX, is a trusted source of global commodity intelligence for the energy, chemical, and fertilizer industries.