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Resin Report: Price Erosion Continues in Spot Resin Market

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The tide may turn in early January with a possible uptick in spot pricing, according to the PlasticsExchange.

The spot resin market was somewhat quiet in the holiday-shortened week heading into Christmas, and overall spot prime pricing was flat to as much as $0.05/lb lower, reports the PlasticsExchange in its Market Update.

Just one week earlier, very active trading was prompted by several waves of railcar offers canvasing most commodity polyethylene (PE) and polypropylene (PP) grades. The material was aggressively priced at steeply discounted levels and made available to the Houston export market as well as for domestic delivery. The likes of these well-discounted holiday-type specials had not been seen for several years. Mid-month buyers mostly stayed on the sidelines watching prices erode with pleasure. While some did pick away with orders, the offerings seemed to accumulate as December wore on. Most low-mid melt homo- and co-polymer PP grades were amply available and priced to move. The heaviest PE offerings were for high-density (HD) PE Blow Mold and Injection; low-density (LD) PE Film grades were also well represented, and some LDPE Injection high flow, which had been scarce, also began to appear. Linear-low-density (LLD) PE Film grades were only lightly available and were snatched up quickly by both processors and traders.

As January PE price increases began to issue, market chatter was that producers would purge material, as needed, and some would likely begin to close out their annual books, so buyers swooped in to procure many of these relativity well-priced railcars. There were no fresh producer PE export offers the past few days, as many took an early holiday leave, though some Houston exporters and traders had some material to sell. Prime PE offers were scarcely available, and a dwindling number of off-grade PE railcars were still unsold.

Resin contracts decrease again in December

Resin contracts are taking another large decrease in December: PE is declining $0.05 to 0.07/lb and PP by as much as $0.15/lb. Producers intended to liquidate much of their burdensome supplies into the export market during December and, indeed, priced their material to sell. However, an unprecedented number of containers were sent back to Asia empty in September and November, as ocean freight carriers sought to get additional material to Europe by year end. Consequently, producers, exporters, and traders alike all reported frustration in their ability to physically move material for lack of containers, personnel, and ship space. Large exporters also report that most upcoming sailings are already full, with the next significant capacity not available until late January. Even though a good surge of buying materialized mid-month, unless producers slow production rates or somehow exported more material than it appears, spot material probably will be available after the first week in January as much of the recent purge was ultimately sold to domestic buyers, writes the PlasticsExchange. Still, producers could enter the new year with more comfortable inventory positions and be less aggressive with their offerings, but it remains to be seen if it has been enough to turn the market for January. Some stellar resin buying opportunities were available in December and those that grabbed them should be pleased with their purchases several weeks from now, according to the PlasticsExchange. 

Spot PE prices down as much as a nickel

Spot PE trading volumes improved for a third straight week, and spot levels were flat to as much as a nickel lower, depending on the grade. A wider variety of PE grades has changed hands this month, including large volumes of HDPE for Blow Mold and Injection, mostly into the export market. These grades have become much more available and but held steady, after slicing off $0.01/lb last week, as their premiums continued to dissipate. LLDPE and LDPE Film grades, which had been the biggest movers the prior week, remained active, holding flat to a penny lower, respectively. Even though the market has been eroding and sentiment has been bearish, LLDPE Film grades happen to be tight, with prime butene, hexene, and octene all considered scarce. LLDPE and LDPE Injection grades also peeled off a considerable chunk, falling as much as a nickel, as these grades adjusted downward along with the contract market.

Premiums continue to remain in place for limited, uncommitted quantities of spot PE material available for immediate shipment. Most PE grades have been available in railcars at a nice discount, but lead time is required. A collective push by producers to increase January contract prices has emerged, at an average $0.04/lb increase, with one initiative a $0.07/lb outlier. The PlasticsExchange notes that some propose that the January price increases serve notice to the market that producers intend to stem the Q4 price slide — the price relief for contracts will total as much as $0.17/lb this quarter. It is too early to gauge the prospects of a timely implementation of the newly nominated increase, of course, and it may take more time to better balance the market. If not in January, producers probably could have a better opportunity in February, according to the PlasticsExchange. 

PP market sentiment was quite bearish, as prices saw another substantial decline, shaving yet another nickel or so from the previously sky-high level. While completed PP volumes during December remained below the 2021 average, material availability increased and large swaths of material were offered, the most PlasticsExchange analysts have seen in 18 months.

PP resin headed for potential $0.15/lb drop

There were several very large groups of off-grade railcars — more HoPP than CoPP — with larger discounts for export earlier in the month. There were also some exceptionally priced opportunities that reflected not only the full decline in monomer costs, but also accounted for a large chunk of margin premium that has been eroding during the down leg of this market cycle. The holiday week was relatively quiet, though. Some straggling Prime PP railcars were sold and off grade continued to flow, continuing the prior action that saw variously sized deals completed in Prime homo-polymer low melts as well as Prime and off-grade CoPP railcars. Upstream producer PP inventories have swelled to near-record levels; with a lack of imports and five straight months of reduced production, however, it is possible that an ongoing liquidation of resin could help rebalance supply and demand. Meanwhile, considering heavy offerings, discounts afforded to spot buyers, and one-off discounts offered to contract buyers, another margin-related nickel could be sliced off for PP contracts. Along with the dime drop in the December PGP contracts, the potential for a $0.15/lb decrease for December PP is at hand. 

The PlasticsExchange reminds readers that it is usually early with its market calls, as it sees fundamentals begin to develop and play out. The resin clearinghouse notes that it was early to buy into the rally beginning in May/June 2020 and again in Nov./Dec. 2020, early to unload inventory in the latter part of Q2 2021 and throughout Q3 2021. The PlasticsExchange foresees market neutrality eventually developing, which will cede to bullishness again, but at this stage, the timing remains uncertain. As such, its market-making inventories entered November at very low levels and it has started to strategically, but only lightly, rebuild positions, including during this past week when some deeply discounted offers were too compelling to pass up. It anticipates a slow end to December and a possible uptick in spot pricing in early January.

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

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