The spot resin markets had their busiest week of the month, bringing the October tally to its highest level since May, reports the PlasticsExchange in its Market Update. Prices for both polyethylene (PE) and polypropylene (PP) held flat, marking the third consecutive static week for PE, although price consolidation continued with the top side trimming while the bottom of the market firmed up. The PlasticsExchange said the price action reinforced its belief that the market cycle has been establishing a long trough floor, particularly for PE. Signs are emerging that PP could be hitting bottom, too.

The unbearable weight of massive oversupply

The market has been plagued by massive oversupply, which kicked off a steep price break since topping out in May. Producers have been working feverishly to correct the imbalance, more so for PE than for PP. In particular, they have sought to reduce inventory levels by throttling back operating rates while increasing exports via aggressive discounts. The strategy is starting to pay off, although an overhang, while dwindling, still remains in some grades.

Railcar offerings were comparatively light the last week of October, as producers have become more comfortable with their inventory positions and did not feel compelled to chase low-ball bids or spray the marketplace with offers to see what sticks. As such, with sellers becoming more passive, buyers have been returning to the market asking for material and starting to pay up a bit. The PlasticsExchange still considers resin market sentiment to be in the neutral zone, but the tide has been turning with a wisp of bullishness beginning to permeate, said the Chicago-based resin clearinghouse.

Producers position themselves for Q1

Some PP producers are still offering deeply-discounted railcars for higher volume orders as they try to line out Q4 reactor time and better position themselves for Q1 in 2023. In the meantime, October contracts are on the cusp of being finalized. PE is gravitating toward a rollover in price, which would be considered a pretty big win for producers. PP is on course for a double-digit drop, with a potential $0.15/lb on the horizon. PGP contracts are leaning toward a healthy $0.12/lb decline, while a margin contraction of perhaps $0.03/lb or more, should round out the total decrease, according to the PlasticsExchange. New resin capacity is still expected to come online this year, but startup delays would not be a surprise. Case in point: Nova said last week it has moved the planned startup of its new PE plant in Canada from Q4 to the first half of 2023.

PE resin prices hold firm

PE kept active with fairly heavy volumes changing hands. Prices managed to hold firm for the third straight week, supported by better buying from domestic and Mexican accounts. Tightening supplies were starting to be felt, and there were few end-of-the-month Generic Prime railcar deals to be had, which helped lift off-grade prices by a penny or two. High-density (HD) PE Blow Mold and low-density (LD) and linear-low-density (LLD) PE for both Film and Injection were the primary movers at the PlasticsExchange last week, while HDPE for Injection and Film saw relatively little interest. Even as PE spot levels have seemingly found a floor, buyers continue to enjoy good availability for most grades near these yearly lows. Some more obscure grades have been in short supply, however, and have become more difficult to source, such as LDPE Injection, EVA, POE, and rotomolding resins.

While producer direct exports still seem to be quite elevated, incremental spot dealings to overseas regions have become challenged by an uptick in Houston pricing, the strong US dollar, and competitive Asian offers. Producers continue working down inventory levels following the roughly 710 million pound drawdown from domestic stockpiles in August and September. This comes amid lower operating rates — well below 80% — that are likely to factor into another drop in October inventory levels. Some producers indicate that resin production will remain significantly reduced through the end of the year. October contracts are closer to settling flat, despite price increase nominations of $0.05 to 0.07/lb, which were not expected to see the light of day unless a significant production disruption occurred. Stable October contracts would cap a three-month slide of $0.11/lb, as producers look to regain pricing power, which has been in the hands of buyers since June.

PP resin activity improves

PP activity improved, inquiries increased, and completed volumes returned to more typical levels. Prices ended flat for the second week in a row, as a combination of slightly better demand and firm PGP prices lent support to an otherwise fluttering market. Demand drivers were similar to the previous week, with some processors looking to re-stock drawn-down inventories or needing to procure quick truckloads because of late railcars.

Homo-polymer (Ho) PP was the main mover, with very high melt leading the way; some Prime low- and mid-melt HoPP, as well as co-polymer (Co) PP No Break also transacted. The PlasticsExchange reports sizable customer demand for well-priced CoPP off-grade, and bids have been moving higher to attract supply.

While the US economy seems to be settling into a higher interest rate environment, buyers are taking a cautious approach because of global economic uncertainty. Until there is a clearer picture of the global geopolitical situation, demand will remain cautious, with producers needing to keep operating rates low to get inventories under control and regain pricing power.

As noted in the previous Resin Price Report, the PlasticsExchange believes prices are nearing the low of this cycle. September polymer-grade propylene (PGP) contracts settled at $0.44/lb; if October finalizes down $0.12/lb, that will put October PGP at $0.32/lb. The October spot PGP weighted average finished the week around $0.285/lb, but November PGP was $0.305/lb, so monomer contracts are finally priced at fair value leading into the next month, according to the PlasticsExchange.

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