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Despite the lower prices, buyers procured minimal volumes of resin to fill immediate needs, sensing that even steeper discounts may lie ahead.

July 27, 2022

4 Min Read
dice saying decrease
Image courtesy of Alamy/Frank Harms

It was a choppy week in the spot resin market, writes the PlasticsExchange in its Market Update, with resin prices continuing to slide. A substantial flow of domestic railcar offers, both prime and off grade, came to market the week of July 18. Additional slugs of material were sold at deep discounts into the Houston market, targeting exporters for incremental sales to clear large volumes of resin from producers’ bulging inventories, polyethylene (PE) more so than polypropylene (PP). The continued drop in spot pricing also comes ahead of another round of warehouse storage rate increases, providing resin suppliers with an additional incentive to reduce stockpiles.

Take a deeper dive into resin pricing trends by listening to the Plastic Possibilities podcast. This month, our guest is ICIS analyst Jeremy Pafford, who shares his analysis of the first half of this year and outlines what might be coming down the resin pricing pike in the next six months.

Sensing even lower prices ahead, buyers were cautious with their purchase orders, procuring minimal volumes as needed. Negative market sentiment and slack consumer demand has also encouraged resellers and processors to thin out on-hand stocks, creating heightened demand for spot truckloads to fill in supply gaps. The PlasticsExchange reports seeing a large range in resin pricing, with off-grade railcars still to ship selling at ever-eroding levels while prices for prime packaged truckloads available for immediate delivery remained buoyed. Meanwhile, rail logistics issues continue to dog shipments into California because of the ongoing embargo, which is set to end at the close of July.

Official price decreases coming for PE, PP resin contracts

It seems that July PE and PP contracts will buck their current price increase initiatives, according to the PlasticsExchange. Instead, processors will receive price relief in the form of official price decreases. PE contracts should decline $0.03/lb, essentially wiping away the $0.03/lb increase garnered in May. June PE resin contracts rolled steady. PP contracts will receive the pass-through cost decrease, as polymer-grade propylene (PGP) is settling down $0.03/lb. There is a good chance that another $0.03/lb or so will come off as a reduction in PP production margin. The expected drop in July contracts lines up with calls for a weak second half caused by stacked supplies and weak buyer demand. As the market cedes to lower levels, however, the PlasticsExchange sees potential for the market to clean up at some point this summer, as we are approaching limited downside risk along with growing upside prospects heading toward the thick of the hurricane season.

PE resin producers hustle to reduce inventories

PE resin activity picked up, and completed volumes easily surpassed the previous week’s tally, but the bar admittedly was quite low. Low-density PE film was the primary mover at the PlasticsExchange marketplace, followed by linear-low-density (LLD) PE, equally spread between film and injection grades. The more robust trading came as producers continued to reduce prices to clear heavy inventories from packed warehouses, especially out of the Houston area.

High-density (HD) PE resin trading remained a challenge — there was minimal action across all blow molding, injection, and film grades, said the PlasticsExchange. Meanwhile, Hexene LLDPE and medium-density PE availability out of Canada tightened following Nova’s force majeure declaration. Despite the tight availability for PE grades from the North, the July contract is expected to settle with a $0.03/lb decrease. With negative sentiment holding a firm grip on the market, resin market participants are pondering whether the big July purge will lead to a new August surge or if the inventory overhang and bearish consumer demand expectations will continue to drag prices yet lower.

PP resin prices erase 2022 gains

PP trading lagged as buyers mostly remained on the sidelines watching resin prices cascade lower. Though prime levels shed just another cent — erasing all of the gains of 2022 — off-grade prices plummeted amid very deep discounts. Of the handfuls of completed PP orders at the PlasticsExchange trading desk, Prime co-polymer PP led the way. Processor demand remained below average, however, as buyers expect additional price relief ahead.

While there was ample flow of both Prime and off-grade railcars, packaged truckloads were sparse and priced at a premium, as resellers had already shed much of their inventories. Although producers’ collective upstream inventories entered July at the lowest level since August 2021, overall PP availability is expected to improve after one major producer announced it would lift its force majeure. This follows another major producer’s decision to remove its PP resin sales allocation earlier in the month. The improved availability comes as the market is being met with new production capacity out of Canada, and producers are under increasing pressure to discount prices to spur demand. July PP contracts are heading toward a $0.06/lb decrease, which would include $0.03/lb of margin erosion. The PP resin price decline has been fast and furious. The final week of July will tell us if buyers are starting to see value at these levels or prefer to continue to watch and wait.

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

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