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Inventory drawdowns, which have been substantial, could give producers renewed pricing power.

November 9, 2022

4 Min Read
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Image courtesy of Alamy/Zoonar GmbH

Spot resin trading continued to improve in the first week of November, with completed volumes exceeding those from the last week of October, which was already the best tally since May, reports the PlasticsExchange in its Market Update.

While the spot market is still generally well supplied across most commodity-grade resins, the flow of fresh railcar offers has diminished. Strong underlying demand has been developing — the PlasticsExchange notes that it is working customer orders for a couple dozen railcars of off-grade polyethylene (PE) and polypropylene (PP), but at prices not seen for several weeks. Some buyers may have missed the boat and price expectations need to be adjusted higher, suggests the Chicago-based resin clearinghouse.

Prime PE, PP prices hold steady

A wide range of prices were quoted and transacted across the PlasticsExchange trading platform, and while levels were slightly firmer this past week, they did not move the needle. Official prices for Prime PE and PP held steady, an indication that this market has been establishing a broad floor. PE contracts rolled flat in October, while PP contracts are decreasing $0.15/lb on average, mostly attributed to a price decrease in polymer-grade propylene (PGP). Production margins also contracted. A PE price increase is on the table this month, again, but it is rare to see one implemented in November. The PlasticsExchange does not expect to see a big change in November PP contracts based on stable spot PGP and somewhat better balanced supply/demand dynamics. But the month is still young.

There are signs of a notable change in market sentiment: After a long and steep downtrend since May and more recent pricing stability, the market seems to be shifting into the mildly bullish zone. The feeling is that the market has already come down so hard and is now stabilizing while supplies tighten, there is relatively little downside risk at this point. “We do not think that the spot market is necessarily poised for an immediate sharp and steep run up,” adds the PlasticsExchange. “For that, we need to see significantly better buying develop, and not just processors procuring resin to restock, but actual stronger throughput driven by improved consumer demand.”

In the meantime, producers have slashed operating rates, limiting new production, while at the same time purging surplus inventory into the export market, PE more so than PP. It has been indicated that producers intend to maintain restricted production through the end of the year; if so, the inventory drawdowns, which have already been substantial, can soon shove supply below demand, providing producers with renewed pricing power.

Robust PE resin trading

PE trading began strong in November, with healthy volumes of material changing hands across most major commodity grades. Higher volumes could have been achieved had there been better availability for some of the more obscure commodity PE grades. Suppliers had relatively few Generic Prime railcars to offer and asking prices didn’t budge. There was little followup by sellers, and scant interest in discounting as margins already have been squeezed.

While off-grade prices inched higher, Prime prices held flat for a fourth consecutive week. There was a steady flow of normal demand and some light restocking beyond typical usage, but robust and widespread demand has not developed, as high inflation and economic uncertainty linger.

Though Houston warehouses remain stuffed with material, much of it has been pre-sold into the export market awaiting shipment. Houston traders are keeping uncommitted inventories somewhat thin, and their asking prices for Prime packaged material edged a tad higher, as carrying costs including storage and interest rates continue to rise along with the upcoming year-end tax. It seems that producers have remained disciplined with their throttled back production through October, as supplies have been tightening. The PlasticsExchange anticipates another major drawdown, adding that it will be very interesting to see upcoming production, sales, and inventory figures.

PP trading reaches highest level since June

PP trading built on last week's momentum, and completed volumes increased significantly to their highest level since June. Prime prices held steady for the third week in a row, while off-grade prices rose a couple of cents. Homo-polymer PP (HoPP) supplies remain ample, and there was a good flow of both Prime and off-grade railcars; fresh co-polymer PP (CoPP) offers were scarce, although producers were still taking Prime orders for material through the end of the year.

Widespec HoPP was the main mover — there was solid demand for both quick truckloads and railcars still to ship. CoPP sales would have been better if more well-priced resin had been made available. For the first time in months, PP contracts appear steady, as monomer prices capitulated in October and have already recovered enough to note fair value in PGP contract levels. Some margin erosion could still be justified, as spot fell faster than contracts, but if reactor rates have remained reduced, producers will rightly dig in firm.

While there are bullish signs building in the market, there is still plenty of uncertainty looming at the processor level, which is leading to subdued demand, potentially hampering a recovery. Do note, though, that processor resin stocks have also dwindled, so there would be plenty of pent-up buying if sentiment were to turn outright bullish, writes the PlasticsExchange in its Market Update.

Read the full Market Update, including news about PGP pricing and energy futures, on the PlasticsExchange website.

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