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Resin Report: Fundamental Downward Pressure on Resin Prices

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Prime polyethylene and polypropylene prices surrendered another penny, as processors sought further discounts amid growing domestic stockpiles and declining feedstock monomer markets.

The spot resin market saw activity pick up substantially in mid-June, as more participants returned to the market seeking lower-priced material, which remained relatively available and even abundant in some grades. Transactional volume improved as the week wore on, bringing a solid net tally, reports the PlasticsExchange in its Market Update.

Prime polyethylene (PE) and polypropylene (PP) prices surrendered another penny, as processors sought further discounts amid growing domestic stockpiles and declining feedstock monomer markets. The lower pricing also comes as some producers have dropped Houston export pricing to open up incremental offshore sales and move out the oversupply of material that remains packed within many warehouses. In the meantime, producers continued trying to preserve and expand margins with reductions in their summer price increase initiatives rather than addressing outright price concessions, which have support from fundamental downward pressure.

Major indices reported a $0.03/lb increase for May PE, though some contract participants not tied to an index were able to avoid paying the full increase. The PlasticsExchange notes it has rarely, if ever, seen a PE contract decrease in the immediate month following an increase in the 20+ years it has been involved in resin markets. This market continues to feel weak amid overall negative economic sentiment, and the outlook for a rollover in June PE contracts remains intact, according to the resin clearinghouse based in Chicago. One PP producer is also seeking an additional margin-enhancing gain in June, after a $.03/lb margin increase was implemented in May to partially offset the PGP-related dime decrease for a net $0.07/lb drop for May.

PE sales, which had been slow, moved closer to average during this past week, said the PlasticsExchange. Availability has been improving, which was reinforced by recent industry data that showed an 85 million pound monthly increase in collective upstream inventories as of the end of May, even though some grades remain difficult to source. Key commodity-grade resins like high-density (HD) PE for Blow Mold and linear-low-density (LLD) PE for Film and Injection were all major movers this week, while low-density (LD) PE Film also saw some decent demand. Though off-grade prices have slipped, and large buyers have been talking the market down to seemingly unrealistic levels, producers' off-grade auctions ended at healthy prices, showing the resilience of the PE market.

After securing a tenuous $0.03/lb increase for May, a second major PE producer has now dialed back its original June increase nomination from $0.06 to $0.03/lb. This follows a producer announcement a week earlier, putting customers on notice that it was reducing its June PE increase of $0.09 to $0.05/lb. Both producers have also announced a $0.05/lb increase on PE for July. The proposed price increases come as the hurricane season slowly advances toward its peak period, while producers look to maintain relatively high domestic resin prices before another new major producer enters the market with new PE capacity over the next two months.

PP trading activity continued to gather momentum into mid-month but then slowed as energy and other major markets fell sharply during the back part of the week. Completed volumes were skewed toward homo- and co-polymer PP and evenly split by quality. Ultimately, spot PP pricing for the week dropped a penny, on average, amid heavier Prime and off-grade railcar offerings and lax demand.

PP prices have slipped $0.03/lb since the beginning of May and a total of $0.07/lb in the past six weeks. They still remain up $0.06/lb from the beginning of 2022, however. Despite this recent down trend, which comes amid recovering inventories and declining feedstock costs, there is another nonconcerted effort to enhance margins by $0.03/lb in June. Even with falling PP prices in the United States, a decline in incoming ocean freight rates has helped to maintain the open arbitrage from Asia, but given significant timing and logistics risks, only limited volumes of resin have been seen sailing toward our shores.

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

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