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Resin Report: Processors Bet on Further Price Cuts in Vain

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Processors still think that market prices will continue to go down and have presented seemingly unrealistic competitive offers, reports the PlasticsExchange. More often than not, they sheepishly return to pay the asking price.

The spot resin markets continued to transact at a rapid rate the first week of February. In fact, the pace accelerated to bring another week of high-volume dealings, the best of this young year, reports the PlasticsExchange in its Market Update.

Resin prices remained firm, as consolidation at the lower end of the pricing spectrum rose a couple of cents while the top end of the polyethylene (PE) market held steady and polypropylene (PP) inched another cent higher. There was a steady flow of off-grade material, but relatively few Prime railcar offers the week of Feb. 1, though traders provided good prime liquidity from their stocks and were pleased to sell off inventory to satisfy demand. Benchmark Prime pricing did not move much at the PlasticsExchange trading desk, but sales prices were higher. There is quite a difference between sellers chasing a buyer’s bid versus buyers just willing to pay the seller’s asking price, notes the Chicago-based resin clearinghouse.

Technically, an $.08/lb increase on PE contracts is on the table

PE contracts held steady from December to January, so last month’s $0.04/lb increase rolled to February, and an additional $0.04/lb increase has been nominated by most producers. Technically, there is an average of $.08/lb on the table for February. One month ago, January PP contracts were looking at a nickel decrease based on softer spot Polymer Grade Propylene (PGP) costs, but the PGP market regained its losses during January to manage steady. Even though many processors were holding out for a $0.03/lb contract decrease coming as a reduction in producer margins, the tightening PP supply/demand fundamentals emboldened producers to hold their position trying to settle flat. There could be some varied January PP results based on contract metric/index. 

Overall PE supplies have been fairly ample and official data indicate an actual oversupply. However, conditions on the street suggest otherwise, as many grades are outright scarce. PP availability has continued to tighten with surplus prime railcars nowhere to be found the first week of February. A steady flow of off-grade and transitional railcars were available, although discounts were harder to find than in previous weeks. Late in the week, it seemed that one PP producer might declare force majeure caused by a lack of monomer and railcars to ship out pellets. This led to a flurry of co-polymer demand that traders with inventory were pleased to sell into. 

Generally speaking, resin market sentiment has improved dramatically from outright bearish in the fourth quarter to neutral during most of January and somewhat bullish in early February, especially with inclement weather sweeping through the country, reminding us of last year’s devastating freeze hitting Houston. Other factors include a considerable pricing retracement from last year’s massive rally already playing out, more balanced resin supply/demand, and soaring oil prices, supporting the international floor price for resin and aiding exports while also raising energy and shipping costs in the United States. 

Scarcity of film-grade resins with slip and antiblock additives

PE trading was strong, though benchmark prices at the PlasticsExchange were mostly unchanged and remained up $0.02 to 0.04/lb since the start of January. Fairly heavy turnover was mainly focused on high-density (HD) PE Blow Mold and linear-low-density (LLD) PE film grades. The latter seemed to quickly sell each time the scarce material was found, writes the PlasticsExchange. Railcars for most commodity HDPE grades could be found at a plus-$0.04/lb February number, but all LLDPE film grades, as well as low-density (LD) PE for Injection and Film grade with both slip and antiblock, have been challenging to source.

At the end of the week, unfilled demand remained for film-grade resins with slip and antiblock additives following a fire and subsequent force majeure on products from a slip manufacturing facility in Memphis, TN. Downtime at the Memphis plant is expected to run through most of February. In the meantime, one PE producer also remains on a planned turnaround at its facility in Texas. This led resin producers to push for the additional $0.04/lb in February, with one outlier initiative at $0.05/ lb for HDPE and LDPE, and $0.07/lb on LLDPE. Processors still think that market prices will continue to go down and have presented seemingly unrealistic competitive offers. More often than not, the offers did not come through and buyers have returned to pay the asking price.

Potential force majeure stokes co-polymer PP demand

Spot PP trading started slow but picked up mid-week and finished very strong. The heavy volumes were brought on by a combination of well-priced material matched with the right buyers, and the potential force majeure in the Northeast, which would impact co-polymer PP supply more than homo-polymer PP. Co-polymer PP held on to its $0.08/lb premium to homo-polymer PP, as heavy co-polymer spot demand emerged following the force majeure reveal to the market. The majority of volume was sold to other traders, and pretty evenly split between Prime homo-polymer PP mid-melt, Prime, and off-grade co-polymer PP high-melt. Supply and demand for more desirable PP resins has become relatively tight, although occasional well-discounted offers continue to materialize. With February PGP contracts currently pointing to the low $0.60s/lb, we are starting to see some prime PP pricing back above $1.00/lb, reports the PlasticsExchange.

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

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