October 21, 2022
While the lower part of the polyethylene (PE) pricing spectrum again held firm the week of Oct. 11, the top end of the polyethylene (PE) market continued to trim, reports the PlasticsExchange in its Market Update. Prime prices sliced off a couple of cents, as processors shopped and suppliers competed for orders, compressing margins. Polypropylene (PP) prices remained under considerable pressure, and lopped off another $0.03/lb. Spot polymer-grade propylene (PGP) prices eroded further, and the resin market remained oversupplied even as operating rates have been cut.
Hurricane season: So far, so good
The petrochemical industry has so far skated through the majority of the hurricane season without a scratch, though there is a bit more to go. Just in case, PE producers have kept price increases on the table. However, barring a disruptive storm, processors will again push for a price decrease in October to find further relief after decreases in both August and September. PP contracts will see another large drop in October contracts, some attributed to a cost decrease while more should also come through as a margin reduction, according to the PlasticsExchange.
PE was the dominant resin to transact in the PlasticsExchange marketplace heading into mid-month, and trading was a bit busier than the previous week. Spot sales were spread across all PE commodity resins — high-density, low-density, and linear-low-density PE. Film grades were in greater demand than Injection, with Blow Molding picking up the rear. PE producers’ efforts to rebalance supply/demand is showing evidence of success, as dramatically reduced reactor rates and near-record export sales during September translated into a massive inventory drawdown of more than 575 million pounds, according to the American Chemistry Council. The two-month tally was more than 700 million pounds, even as September domestic PE sales were lackluster at 120 million pounds below the trailing 12-month average, reports the PlasticsExchange. This brought producers’ collective PE inventories down to a level nearly 150 million pounds below where they stood at the start of 2022. So the huge discounting to encourage export sales along disciplined production is starting to have a statistical impact, even though barely noticed in the domestic market, where resin supplies remain ample.
Spot PE pricing erodes faster than contracts
The freefall in PE pricing appears over though bottoming action continues, and sentiment has shifted from bearish to neutral, but not yet bullish. Spot pricing eroded quicker than contracts, so top-end pricing still has some room to slide and another contract decrease is quite possible this month. There has been an uptick in Asian resin prices; despite competitive international offers and a strong US dollar, export interest from the United States remained strong during the first part of October. If elevated exports persist and producers continue to run reactors at significantly reduced rates, supply and demand should rebalance during Q4, leading into Q1 with typical seasonally stronger pricing. In the meantime, new capacity coming on stream will add to complexities, though it is not unexpected.
Spot PP prices finish week down a few cents
PP activity trailed off after a decent start to the month. While completed volumes at the PlasticsExchange trading desk were healthy, much of the activity was concentrated in a series of off-grade railcar transactions rather than spread out among a wider group of buyers. Some business was done in Prime co-polymer PP, but it was mostly truckload transactions, so it was a smaller volume in comparison. Spot PP prices followed PGP lower and finished the week down a few cents. Homo-polymer PP pricing has come off $0.15/lb in the past month or so, while co-polymer PP has shed $0.20/lb, returning toward a more normal price relationship. PP producers also throttled back reactor rates dramatically in September, producing the third lowest quantity of resin in 32 months, which includes the hurricane and freeze markets.
PlasticsExchange analysts suspected the sharp slowdown in PP production as it was occurring because of the heavy flow of off-grade railcars hitting the market alongside the dumping of spot PGP monomer that was not needed for resin. However, domestic demand in September was just as lethargic as production, as US buyers procured the third smallest volume of PP resin in 28 months. Despite more disciplined production, PP inventories had a small 14 million pound build and the oversupply endures. Producers need to maintain drastically reduced operating rates for some time to help rebalance the market. In the meantime, the PlasticsExchange expects a very large contract decrease this month, partly from the sharp decline in PGP costs, as well as the lack of producer pricing power, which impacts production margins. There is still more capacity to come online, as well as another propane dehydrogenation unit to make more PGP monomer.
Read the full Market Update, including news about PGP pricing and energy futures, on the PlasticsExchange website.
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