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Resin Report: Pricing Power Is Now in Hands of Processors

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The “bearish” resin market is expected to linger through the end of the year.

Domestic prices for most grades of polyethylene (PE) and polypropylene (PP) continued to slide as October drew to a close last week. This “bearish” market is expected to continue through the end of the year, reports the PlasticsExchange in its Market Update, although “in this dynamic industry, conditions could certainly change.” A broad base of processors took advantage of the recent price relief with purchase orders, but they were generally for minimal quantities. While some railcars were in the mix, the deal flow was mostly one to two truckloads for short-term resin needs, writes the Chicago-based resin clearinghouse. 

Overseas resin pricing remains generally attractive, but high ocean freight costs, port congestion, and exorbitant logistics costs have mostly eliminated importers’ incentives to procure more material. Consequently, the new incoming flow has been greatly reduced while imported lots already warehoused in the United States largely have been depleted. The timing has been fine, however, as the heavy imports served the market’s needs during the first three quarters of 2021 and North American production has been back by and large for many months.

Ample domestic resin supply

Domestically produced resin has become more than ample to fill demand, according to the PlasticsExchange. In fact, international buyers have been seeking US resin to export, and much more incremental resin is now heading out rather than coming in. PE prices in Houston have come off to the extent that meaningful quantities of material are selling offshore, easing the burden of oversupply at the producer level. PP exports have ticked up, too, but the volumes remain relatively tepid, with most of it going to Mexico. 

After more than a year of consistent price increases, domestic PE contracts held steady in August and September. While still not fully settled, a nickel decrease should come through for October contracts. Some processors are pushing for more, and they may see it in November.

October PP contracts should see a decline of around a dime, which some consider light. There should be another sizable decrease in November and possibly in December, according to the PlasticsExchange. While there were some deeply discounted prime and off-grade lots at the end of the month, the market has only been gradually sliding in price and is not in virtual freefall. 

Polyethylene trading solid

Increased PE availability pulled down spot prices on most grades from $0.02 to 0.04/lb, which spurred demand. Although most grades saw some price erosion, high-molecular-weight (HMW) Film, which had already been battered, and low-density (LD) PE Injection, which remains very snug, held steady. Most commodity grades have fallen below a buck, with linear-low-density (LLD) PE Injection the lone exception at $1.00/lb because of its scarcity. LDPE and LLDPE Film grades were all well pressured heading into November, though there was still a lack of hexene in the market.

Overall availability should continue to increase, as producers have brought all PE units back online in Louisiana and Texas, and a new 1.44-billion-lb LLDPE unit in Corpus Christi has come online. A second new 1.44-billion-lb PE unit is scheduled to come online this month, also in Corpus Christi, further adding to overall domestic production.

With operating rates returning to normal and new capacity coming online, further downward price pressure is expected. By next week, all major commodity PE grades should be below $1.00/lb for the first time since February 2021, predicts the PlasticsExchange. Some supply challenges remain, however, with a handful of force majeure and allocation programs still in place and some PE maintenance outages planned through December. 

Polypropylene prices decline for fourth consecutive week

PP prices peeled off an additional $0.04/lb, extending its downward decline to a fourth consecutive week on the back of improving supply, soft demand, and continued weakness in feedstock PGP costs. Although overall industry demand was weaker, business did pick up at the PlasticsExchange trading desk, as spot prices turned discount to slowly declining contract levels. The market was more liquid and business was well spread between grades, with some high-quality railcars transacted, reports the PlasticsExchange. 

Like PE, PP supply has been returning to above-average levels and additional price erosion is expected. Right now, processors have the pricing power for a change. How long that will last is still in question.

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

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