August 9, 2022
The dismal demand and ample supply that characterized the commodity resin markets the last week of July spilled over into the first week of August, reports the PlasticsExchange in its Market Update. Spot prices for both prime and off-grade resins continued to crumble, and the continued flow of aggressively priced offers kept most processors pinned to the sidelines. The lack of buying did not deter producers from pelting the marketplace with resin — they seem determined to find a level that will spur demand.
Spot resin prices have been going through a swift, steep period of readjustment, notes the PlasticsExchange. Polyethylene (PE) resin prices peeled back another penny last week, while polypropylene (PP) dropped another three cents, creating extraordinarily discounted spot buying opportunities compared with prevailing contracts. Export offers also felt the pressure, as producers chased large-volume international orders hoping to liquidate some of their inventory.
July PE resin contracts wipe away May increase
July PE contracts decreased $0.03/lb, wiping away the contentious increase garnered in May, reports the PlasticsExchange. July PP contracts dropped an average of $0.07/lb, including a pass-through polymer-grade propylene (PGP) cost saving plus an additional $0.04/lb or so in margin reduction. The onslaught of offerings in early August indicated that the July purge did not sufficiently clear the supply overhang. The PlasticsExchange believes the prevailing negative sentiment could continue until a catalyst emerges to alter the current downward trajectory in resin prices. As such, processors are again pushing for additional price relief for August.
Take a deeper dive into resin pricing trends by listening to the Plastic Possibilities podcast. 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.
Although it lost a penny, PE trading was slightly more active to kick off the new month. A heavy flow of off-grade railcars were available at well-discounted prices. The increased activity raised completed volumes, which were evenly spread across low-density (LD), linear-low-density (LLD), and high-density (HD) resins. Sensing another difficult month, resellers began unloading some of their Generic Prime railcar commitments. Though producers technically have a raft of price increases stacked for August and beyond, negative market sentiment remains. Unless something happens to disrupt supply, the continued decline in PE spot levels seems to set the stage for another decrease in the upcoming PE contract following the $0.03/lb drop in July, according to the PlasticsExchange. If so, the current $0.05/lb increase and others will remain on the table as a protective measure against the hurricane season or other significant unforeseen outages.
The current supply glut has been exacerbated by lackluster exports and compounded by additional capacity set to come online by the end of the year from Shell’s new PE units in Pennsylvania. With nowhere else to place resin, suppliers are also enforcing demurrage policies, asking customers to empty and return railcars ASAP. The rail embargo into California will continue this month, although suppliers can apply for permits to ship cars. Logistics and availability for some grades are still an issue, as well. Hexane and metallocene remain in short supply, with a force majeure for hexane linear-low-density and medium-density in place.
Homo-, co-polymer PP resin prices drop
PP trading was good but not great, writes the Chicago-based resin clearinghouse in its Market Update. Homo- and co-polymer PP resin prices peeled off a few more cents, completed volumes were about average, and very high-melt homo-polymer led the charge while some Prime co-polymer PP deals were completed, as well.
Prime railcar prices actually rose a couple cents from the end of July free-fall levels, as higher spot monomer costs currently point to a slight bump up in August contracts. It was not enough to bring buyers back to the market en masse, however. In fact, the heavy flow of off-grade offers gave processors a sense of confidence that lower resin prices could continue. The phenomenally priced deals ended with railcars, though. Resellers had already shed the vast majority of their inventoried PP resins, so there is a shortage of Prime package material, both homo- and co-polymer PP, ready for immediate shipment. While suppliers with material still on hand have eased their pricing somewhat, they generally scoff at low-ball bids, knowing that competitive offers are still a few weeks out, if one were to pull the trigger on those railcars now.
While new production capacity coming out of Canada will add to overall supply, it has had little impact so far, according to the PlasticsExchange. The perception is that overall availability remains ample even amid reduced production, but one should remember that this market has the ability to clean up in a proverbial heartbeat if good value is perceived at these discounted levels, causing sentiment to shift. PP exports are never much of a factor, but imports can be. Overseas offers are below US levels, reports the PlasticsExchange, but it adds that it has not seen any speculative buying develop.
Read the full Market Update, including news about PGP pricing and energy futures, on the PlasticsExchange website.
In other resin-related news
Global collapse in petrochemical and polymer prices
The monthly ICIS Petrochemical Index (IPEX) published today is recording a collapse in commodity petrochemical and polymer prices worldwide as economic and cost pressures for the sector mount, ICIS announced today. The leading indicator points to further price falls to come and significant margin pressure on some of the world’s major chemical companies, said the business intelligence firm.
China’s stumbling economy, consequences of the war in Ukraine, and threats of recession have put intense pressure on commodity prices, which have begun to fall sharply in the major petrochemical and plastics producing and consuming regions of the world, writes ICIS.
The monthly IPEX, released today, shows how prices have dropped sharply in northeast Asia and have been under intense pressure in northwest Europe and in the United States. Three regional sub-indexes comprise the global index, which fell 8%. The indexes are based on prices of 12 commodity petrochemicals and polymers weighted by capacity to produce taken from the ICIS Supply and Demand Database.
“The collapse in petrochemical prices worldwide is ongoing,” said Nigel Davis, Insight Editor at ICIS. “Some contracts for August have been settled already and are down sharply month on month. The price collapse, which began in Asia, is spreading around the world.”
The latest monthly IPEX charts largely contract prices in the three regions in July. August contract prices for the key aromatic petrochemicals, benzene and toluene, have suffered steep falls after strong increases in recent months driven by tight availability. Aromatic petrochemicals are used to make essential plastics such as nylon, polystyrene, and polyesters; flexible foams, such as memory foam used in bedding; and insulation for the construction and packaging industries.
The major correction for aromatic petrochemicals came sooner than ICIS analysts had expected. “Benzene contract prices in both Europe and the US plunged in August, as markets adjusted downwards from the upwards spike in spot prices seen in late June,” said ICIS Senior Analyst Rob Peacock. “Spot prices had been declining throughout July on lower crude and gasoline prices, coupled with reduced demand. Demand from the gasoline market faded quickly in the US and, hence, Europe dropped off faster because it was not leading the gasoline-led spike,” Peacock added.
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