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Resin Report: New Force Majeure on Polypropylene Additives

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It’s the third force majeure declared by a major producer in as many weeks.

While spot resin trading picked up as April drew toward a close, Prime polyethylene (PE) and polypropylene (PP) levels held steady, leaving spot PE and PP prices up the $0.02/lb gained earlier in the month, reports the PlasticsExchange in its Market Update. Fresh Prime railcars were scarce, but there was a steady flow of off-grade cars, which continued to ratchet higher in price.

Buyers and sellers face a number of uncertainties in the market, ranging from the war in Ukraine, supply/demand concerns brought on by the recent COVID lockdowns in China, and the ongoing supply-chain crunch affecting logistics domestically and abroad. All of this comes on top of rising logistics, packaging, and warehouse fees. And we haven’t even gotten to hurricane season yet!

For the third straight week, a major producer issued a force majeure, this time for PP additives. The additive issue for PP is not at all new, notes the PlasticsExchange, as one producer previously declared a force majeure for the same reason in November 2021.

Producers seek contract price hike

The declarations of force majeure on PE, and now PP, come at a time when producers are looking to increase contract prices for April and May. Despite upward pricing momentum and a $0.06 to 0.07/lb PE increase on the table for April, an influential index estimated that April contracts would roll flat, which seemed to sap spot resin demand. Producers appeared quite displeased with this call, according to the PlasticsExchange, especially since they had just nominated another increase of the same magnitude for May. As such, the Chicago-based resin clearinghouse said it was not surprised to see producers limit new offers. The resin markets have been very volatile the past few years with extreme production disruptions and soaring prices eventually giving way to swift and severe pricing corrections. The current PE increase of $0.06 to 0.07/lb does not necessarily need to be a polarizing all-or-none situation. Perhaps producers and their direct customers can settle on a softer number for April, between $0.02 and 0.03/lb, which is basically the level that spot prices rose in April, suggests the PlasticsExchange.

PE resin pricing holds steady

PE activity and completed volumes ran above average, as pricing held steady the week of April 25. Limited railcar offers had processors and resellers scooping up packaged truckloads to supplement supplies, some of which were caused by delayed railcar shipments. Most PE trading in the PlasticsExchange marketplace involved high-density (HD) PE injection, followed by linear-low-density (LLD) PE for both Film and Injection, while low-density (LD) PE Film grades outshone HDPE for Blow Molding.

The heavier buying comes amid further supply constraints following the force majeure out of Louisiana for select grades, and limited LDPE produced in Mexico because of a plant issue. Despite the steady pricing observed last week, upward pricing pressure remains with ample demand in place versus generally tight supply, as producers have been able to ramp up their exports to near-record levels. Regardless of the call to roll April contracts flat from March, PE producers are steadfast in their collective push for an April price increase of $0.06 to 0.07/lb, followed by another increase in the same amount for May, totaling $0.12 to 0.14/lb between the two months. The current increase is clearly contentious and will go into May before it is fully settled, according to the PlasticsExchange.

Prime PP resin difficult to source

On the PP front, completed volumes were a bit below average and prices held steady despite softer monomer costs. There was nary a Prime PP railcar available late in the month, though plenty of packaged truckloads rolled through. With the market somewhat starved of Prime, off-grade railcars were again in high demand and prices continued to climb. Some suggest that the softer upstream monomer costs are a result of throttled back production, which could help explain the lack of Prime and the heavy flow of off grade that often occurs when reactor rates are reduced. PP imports are trickling in at a reduced volume compared to year-ago levels. The import arbitrage is open but not overly exciting considering market risks and high logistics costs.

The PlasticsExchange expects April PP contracts to fully settle down a penny, following direction from the same level decrease in the April PGP contract. With three PP producers now on force majeure and upstream inventories reduced, producers will make a strong push to implement their $0.06/lb margin-enhancing increase in May.

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

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