Polyethylene (PE) and polypropylene (PP) resin prices continued to slide the first week of November. Losses of $0.02 to 0.03/lb were common, unwinding the once steep spot premiums that developed earlier this year. Producers sought to move excess material while traders and resellers also unwound positions amid the bearish sentiment gripping the market. These fundamentals may be pressuring the resin market lower, reports the PlasticsExchange in its Market Update. It stresses, however, that the ongoing price erosion is gradual and unlike the steep drop offs seen in previous negative cycles.  

October PE and PP contract settlements were finalized at losses of $0.05/lb and $.095/lb from September, respectively. After two months of rollover pricing in August and September, the decline in October PE contract levels is welcomed by processors, though many were pushing for more, according to the PlasticsExchange. For PP, the October decline follows the $0.03/lb drop in September. The ongoing weakness in spot prices is setting the stage for another likely decrease in upcoming November PE and PP contracts. This gradual price dip has led to some unrealistic bids from processors, especially for prompt delivery. While further price erosion is expected for the remainder of the year, the PlasticsExchange cautions that the market can shift. “Hurricane season may be safely behind us, but winter is right around the corner and is a reminder of the freezing temperatures that brought our entire industry to a halt back in February and set the tone for a volatile 2021,” writes the Chicago-based resin clearinghouse.

Resin imports face strong headwinds

Although overseas resin pricing may be more attractive than domestic, elevated freight and logistics costs coupled with port congestion, which is expected to spill over into 2022, have eliminated incentives for importers to bring in additional material. With domestic resin production returning and resin supplies again ample after rebuilding since March, few seem interested in complex imports anyway, according to the PlasticsExchange. Producers have been shedding some of their overstock with substantial quantities of PE exports again selling offshore and more PP exports moving down south into Mexico. 

PE trading stayed solid, as healthy demand and good availability pulled spot prices for most grades down another $0.02 to 0.04/ lb. The decline brought all commodity grades below a dollar for the first time since February 2021.

PE producers continue to ramp up output

Injection grades for low-density (LD) PE and linear-low-density (LLD) PE continued to command the strongest premium because of their scarcity, but availability is growing even for these tight grades. On the opposite end of the spectrum, high-molecular-weight (HMW) Film, which has been snug, departed from pricing in the low $0.80s/lb the past three weeks and drifted deeper into the high $0.70s/lb. Although LDPE and LLDPE film grades have also come down, hexene is still lacking in the market, maintaining a large premium over butene. Availability should continue to enhance as producers further ramp up operating rates following hurricanes in the Gulf Coast these past couple of months. Also, new capacity has come online in Texas with more expected to appear in November. Some grades of high-density (HD) PE, specifically pipe and film, may become a tad tight after one producer placed an HD unit on force majeure in Texas. The producer said it was working to minimize the impact and is examining the duration of repairs. Other supply challenges also remain, with a handful of force majeure and allocation programs still in place and PE maintenance outages planned through December.

PP inventories set to grow, outpace demand

After a solid October finish for PP, November got off to a fairly slow start. Activity was limited during the past week as the price expectations of buyers and sellers often were too far apart, or material was not in workable locations, which was further complicated by inflated freight prices. Homo- and co-polymer PP prices slid another few cents because of ongoing supply improvement. Slightly stronger PGP spot levels offered some support, but for now, the downward trend is intact, writes the PlasticsExchange. With October PP contracts following the $0.09/lb decline seen in October PGP contracts, plus a half-cent of margin erosion, this is very likely the beginning of multiple months of margin erosion that could lie ahead as inventories grow and outpace demand. End of September PP inventories were back up near 2019 average levels, and October inventories likely ended above. Producers appear to have caught up or are very close to their comfort zone and might tap the export market in larger volume to help offset inventory growth. Spot domestic demand has been lagging and could surge again as supply-chain bottlenecks shift around. Even so, higher export volumes could be utilized to better balance the market.

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