Resin Price Report: Supply Tightness Expected to Continue

Prime polyethylene (PE) and polypropylene (PP) prices held flat the week of Aug. 28, but maintained their upward bias. After a very strong start to August, demand tapered off the second half of the month, reports the PlasticsExchange in its Market Update. Availability also diminished, as most producers sold out of their spot resin. Continued tightness is expected through September, caused in part by unexpected outages as well as upcoming planned turnarounds.

Relatively few fresh railcars were offered last week, though some wide-spec cars — mostly with undesirable specs — remained. Resellers have also reduced their prompt availability: Expecting a better flow of material in August, some were caught short in filling and shipping railcars in a timely manner, leading to a bit of a run on packaged truckloads to satisfy supply gaps, writes the PlasticsExchange.

Gulf Coast dodges a bullet

The more active hurricane season has been keeping market participants on their toes, as Hurricane Idalia hit Florida. A bullet was dodged, as the storm veered away from the petrochemical producing part of the Gulf Coast, where much of the nation's resin production is situated. However, the threat remains for the next couple of months. Producers have nominated September price increases for both PE and PP contracts: They are logically in place during hurricane season, but could find favor regardless of weather events as supply/demand dynamics have been shifting pricing power back to sellers.  

Rapidly rising prices for Crude Oil, at the top of the supply chain for most international PE and PP resins, has further lifted ethylene and propylene prices in Asia, which are now approaching $0.40/lb. This upward cost pressure in regions outside of cost-advantaged North America, which derives most of its feedstock ethylene from natural gas liquid (NGL) streams, and with the advent of propane dehydrogenation (PDH) units, has enabled additional export sales at rising prices.

PE exports have now reached nearly 50% of all producer sales, and PP exports, while only around 5%, have also been on an upward trend that should grow over time. 

By design, this alternative demand for North American commodity resins gives producers an excellent outlet for the massive capacity expansions seen over the last seven years, according to the PlasticsExchange. Aside from soaking up surplus material, Crude Oil costs, which just reached the highest level since November 2022, have also been raising the floor price for export resin as well as domestic resin. The flood of well-priced North American resin into higher cost regions has pressured local producers to throttle back their operating rates to prevent oversupply from developing, notes the PlasticsExchange. International resin trade flow is being affected by other factors, too: major gridlock at the Panama Canal has caused huge delays and the aforementioned higher feedstock costs have also brought fewer Asian offers into Latin America, causing these markets to look to the north for competitive supplies.

Spot PE resin availability thins

Domestic PE trading was reduced as August came to a close. High-density (HD) PE was the main mover at the PlasticsExchange trading desk, overtaking linear-low-density (LLD) PE, which dominated much of August. Producers continued to hold back material in favor of incremental export shipments at prices that rival some domestic sales. As such, spot resin offerings were thin, few fresh railcars were shown to the market, and some PE grades packed and ready to go were outright difficult to source. Overall prime pricing for main commodity PE grades was largely unchanged, holding the two-cent gain from July. However, buyers chasing sparsely supplied grades such as LLDPE Hexene and Octene, low-density (LD) PE Fractional melt, and high-molecular-weight film have had to pay up to promptly procure material. Reduced production out of Orange, TX, following CP Chem’s force majeure last month has strained availability some, but increased capacity will continue to come online from producers Baystar, Shell, and Nova.

August PE contracts probably will settle flat, though a potential increase is still possible as producers dig in. For instance, LyondellBasell/Equistar revised its August price increase on Sept. 1 from $0.05/lb to $0.03/lb, while also reaffirming its nickel increase for September sales. Popular index prices have been erratic and unpredictable this year, notes the PlasticsExchange, with even late-month estimates sometimes being revised.   

Although the PE market has bottomed and turned higher in August, it could be difficult to justify a price increase from index levels, according to the PlasticsExchange. Official price decreases were not granted when seemingly due in prior months; instead, index price premium slippage increased relative to the general market price as unofficial discounts appeared and the magnitude of accruing non-market adjustments grew. Either way, fluid spot/transactional prices are on the rise as September gets underway. The PlasticsExchange added that it maintains its bullish outlook.

Commodity-grade PP pricing holds steady

PP trading outshone PE again, and sales were evenly split between homopolymer (Ho) and copolymer (Co) PP resins. Overall commodity-grade pricing held steady for another week, buoyed two-cents above the cycle low. High Flow and No Break resins were scarce but in demand, and they commanded premiums. Activity and interest may have slowed ahead of the Labor Day weekend, but sentiment continues to improve as availability becomes more strained from producer efforts to tighten up the market and build on the upward momentum to enhance spot pricing. Despite the burgeoning upswing, most processors seem comfortable with their resin inventories, as many have built a supply buffer in the event of potential disruptions during hurricane season.

Most PP contracts in August will follow polymer-grade propylene (PGP) contracts down a half-cent. PGP monomer costs also bottomed out in early August, however, and already point higher for September. We have been experiencing margin expansion in the spot market, notes the PlasticsExchange, and producers continue to pursue a contract margin increase. LyondellBasell nominated a three-cent price increase for September, just a week after Formosa came out with a proposed September increase of $0.02/lb for HoPP and $0.04/lb for CoPP. The PlasticsExchange said it maintains its belief that the risk/reward at this price level is skewed to the upside, especially since supplies are already feeling tight.

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