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Resin Report: Double-Digit Decline Forecast for Polypropylene Contracts

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Polyethylene contracts also are expected to shed at least a nickel by month’s end.

Spot resin prices continued to erode last week amid growing supplies, but activity at the PlasticsExchange trading desk was sporadic, reports the resin clearinghouse in its Market Update. Resellers and processors were apprehensive about procuring more material than needed in the short term.

Spot demand has been weakening as sentiment shifts to bearish after the long and unprecedented rally that brought record pricing during the first half of 2021. Beginning about a month ago, very sharp offers for prime polyethylene (PE) and polypropylene (PP) appeared in the Houston/export market, and in the past couple of weeks there was also a smattering of well-discounted domestic railcars. Most carried off-grade material, with some downgraded prime, as well. Ocean freight rates from Asia have subsided to become merely super expensive, but given the correction in US resin prices, there has been limited interest to import fresh resin unless shipments were already on the water. On the other hand, exports from the United States have started to increase, as producers look to sell off large volumes of inventory.

Well-needed resin price relief at hand

Although producers officially had $0.05/lb price increases on the table for October — rollovers from previous months — well-needed price relief is finally at hand for processors, writes the Chicago-based PlasticsExchange. Given spot market activity and pricing, it now expects PE contracts to fall at least a nickel and PP contracts to decline by double digits in October. Resellers and traders have been seen taking orders short, believing that availability will continue to increase and that they will be able to get well-priced material in time to make deliveries. However, some probably will need to tap the spot market for prompt truckloads along the way, adds the PlasticsExchange, which believes that additional decreases will come through before the end of the year. If producers can purge enough inventory into the export market, perhaps the market will begin a new up leg of its cycle in the first quarter of 2022. 

The spot resin markets are correcting and PP prices reflect every bit of the break in monomer, plus a little extra. Producers are not eager to surrender their hard-earned margin, however, and the PlasticsExchange writes that it would not be surprised if the major indices hold October contract decreases to a minimum. The current market weakness was not at all unexpected. Savvy traders that have followed PlasticsExchange forecasts were buying heavily at the start of the year and saw it unwind positions through Q3 with staunch expectations for weakness in Q4. While this down cycle is really just getting underway, the correction is likely to continue and the market may see a trough toward the end of the year.

Most commodity PE grades fall below $1.00/lb

PE prices chunked off $0.03/lb last week, as producers chased buyers’ bids and competitive offers from other suppliers. Overall trading volume was good, reports the PlasticsExchange, as buyers welcomed the relief, while every order was somewhat of a blessing to sellers looking to liquidate their inventory positions. Most commodity PE grades have now fallen back below $1.00/lb except for still scarce linear-low-density (LLD) PE and low-density (LD) PE Injection and Roto grades, which now command the highest premiums and remain challenging to source. All film PE grades also remained well pressured.

Other grades, such as high-density (HD) PE Injection and Blow Mold, which had been more sought after over these past three quarters, have seen premiums gradually deflate as availability improved. Availability is expected to continue to increase as producers have brought all PE units back online in Louisiana and Texas, and operating rates have returned to normal following hurricanes Ida and Nicholas. Some supply challenges remain, however, with a handful of force majeure and allocation programs still in place. Also, PE maintenance outages are planned through December.

Supply-demand dynamics drive down PP resin prices

PP prices peeled off another $0.03/lb last week, as a combination of improving supply, lackluster demand, and weak feedstock PGP costs have pressured the market lower. Since the start of October, PP resins have fallen some $0.12/lb and a hefty $0.24/lb from the top, as producers moved fresh material and traders unwound positions.

Spot PP prices are in the midst of swinging from premium to discount as the market unwinds. PP exports have increased somewhat, although not massively, which is another sign that producers see their inventories as sufficient. Domestic demand has softened as processors work down their defensive inventory positions built during the third quarter. Still, higher value domestically produced PP resins, like co-polymer PP Impact, No Break, and Random Clarified, remain somewhat scarce, while imported supplies continue to deplete. Small processors, large contract buyers, and distributors alike are enjoying a rare taste of pricing power and they anticipate further price erosion in both spot and contract prices.

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

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