In last week’s column reporting on resin trading activity during the week of Aug. 22, we wondered if resin pricing had found a bottom. That may have been prescient . . . or premature. Reporting on spot resin trading the week of Aug. 29, the PlasticsExchange notes in its Market Update that activity has improved amid volatile pricing, which might ultimately prove to be "bottoming activity."

Spot and export pricing initially cascaded lower last week, with high-volume export transactions completed at deeply discounted prices, well below domestic contract levels, writes the PlasticsExchange. This latest export inventory dump came in the wake of resin production cuts, as producers seek to rebalance supply/demand fundamentals. It still needs to be seen whether the big purge of material will be enough to relieve a significant amount of excess resin supplies that have been hanging over the market, pressuring prices lower during this cycle correction.

Some indications that resin prices will begin to rise

The blow-out pricing was not market wide, but rather for very large certified export sales, although there were also some domestic spot polyethylene (PE) and polypropylene (PP) railcars that were priced super sharp, writes the PlasticsExchange. By the end of August, the heavy selling had subsided, though there were still some straggling offers that carried into September, including from recent trader purchases looking for a quick flip. Otherwise, few fresh offers were seen later in the week as the new month began, with indications that producers’ asking prices would ratchet back up when market participants returned from the Labor Day holiday weekend. It is worth noting that major cycle changes often occur when long weekends coincide with a new month, creating some distance from recent market conditions. In this case, only time will tell.

Though spot PE and PP prices both spiked lower into the end of the month, there was a quick snap back and the PlasticsExchange netted out its overall pricing as flat for the week. In the meantime, August resin contracts will see decreases. August PE contracts were in the process of being completed at reductions of as much as $0.06/lb, a far cry from the nickel increase that producers initially sought to implement. August PP contracts were also veering toward a $0.01/lb decrease. That would include a $0.02/ lb cost increase passed through from the polymer-grade propylene (PGP) contract increase but is more than offset by a $0.03/lb PP margin contraction for a net penny decline.

Producers bank on hurricane season

PE producers have nominated increases up to $0.10/lb between September and October, which could become relevant as the heart of the Gulf Coast hurricane season begins. It has been very mild to date. Producers have their work out cut out for them as they look to clear record PE and near-record-level PP inventory. Warehouses are jammed full of material as storage costs escalate and additional resin capacity comes online.

Logistics are improving, after BNSF Railways lifted its permit embargo in California in late August. Only eight vessels lined up to enter the West Coast this past week compared with a record 109 vessels back in January. Resin producers continue to ask for their empty railcars back and rail carriers pull additional cars out of storage to serve demand. Vessel space out of Houston has become a bit easier to secure, which could aid exports, reports the PlasticsExchange.

Solid demand lifts PE resin prices

PE trading activity improved the week of Aug. 29, as another wave of discounted offers hit the market, but it snapped back in the later part of the week on the heels of solid demand. Market sentiment has been improving the past two weeks, ever since producers announced a reduction in production, which the PlasticsExchange interprets as a signal to the market that the down leg of the cycle is coming to an end. At this point, negative sentiment has strengthened to mostly neutral, and buyers are starting to return.

Completed business was well spread across all key PE commodity grades, including low-density (LD), linear-low-density (LLD), and high-density (HD) PE. The market action seemed like blow-out capitulation and snap recovery, which are signs of cycle bottoming, according to the PlasticsExchange. It will take a little time to confirm whether or not this is truly the case, adds the Chicago-based resin clearinghouse. While much of the purge ended up in the export market, fairly steep domestic discounts were also seen. Traders stepped in and bought some of the bargain-basement deals, some of which were immediately available for resale; others were stored for later sales.

Recapping year to date, spot PE prices initially rose from Jan. 1 at an average of $0.09/lb. Spot PE prices peaked on May 9 and have been eroding ever since, falling an average of $0.16/lb, which leaves spot prices down a net $0.07/lb this year. Contract prices have also swung, but the volatility was comparatively muted. Increases of $0.04/lb were implemented in March and another $0.03/ lb in May, offset by a $0.03/lb decrease in July and a probable $0.05 to 0.06/lb decrease in August. That will leave PE contracts down a net penny or two for the year. A nickel increase is on the table for September, but as long as the Gulf dodges hurricanes, implementation will be greatly challenged.

PP resin market perks up as calendar flips

Spot PP interest was fairly lax during the first part of last week, but some strong dealings developed just as the calendar flipped to September, making for an overall pleasantly productive week at the PlasticsExchange trading desk. Some minor bullish momentum even developed ahead of the long holiday weekend. Buyers continued to pick away with truckload orders. Activity then picked up as several sellers made aggressive offers that buyers met. As those offers cleared, demand remained, providing firm bids with the condition that similar material could be sourced.

Most business was done in Prime ready-to-ship truckloads, while co-polymer (Co) PP slightly outsold homo-polymer (Ho) PP. Volume was fairly evenly split between mid- and high-melt grades. As has been the case for the past several weeks, a supply overhang of some grades remains while others are outright difficult to source. This comes as some processors have started to buy extra resin as a protective measure for the remainder of the hurricane season. In the meantime, other processors continue to draw down from on-hand inventories alongside weak throughput demand. HoPP spot prices are down $0.08/lb and CoPP spot levels are down $0.06/lb compared with where they were at the start of the year. The spread was even wider compared with late April/early May peak levels at $1.03/lb and $1.13/lb for HoPP and CoPP, respectively. Meanwhile, PP contract prices year to date were down $0.13/lb, while PGP contracts were down $0.07/lb through August.

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