The spot resin market ended the year on a quiet note, writes the PlasticsExchange in its first Market Update of 2022. Spot prime polyethylene (PE) pricing was flat while polypropylene (PP) dropped by as much as $0.04/lb, continuing an overall decline from record highs established earlier in the year. The type of high volume and steeply discounted prices for mostly off-grade PE and PP railcars made available both to the Houston export market and for domestic delivery had not been seen during the December holiday period for several years. Still, many buyers opted to stay on the sidelines and watch the sustained price erosion rather than secure material. While PE producers reported heavy export sales during December, they also faced difficulty moving desired volumes to help clear excess supplies, as a lack of containers, personnel, and ship space continued to hamper export efforts.
Resin producers may attempt another bull run
Unless PE producers have slowed production rates, as PP producers did, it is likely that spot material will be available again in early January, according to the PlasticsExchange. However, resin producers learned a very valuable lesson during 2021 — the market can tolerate substantially higher resin prices before seeing demand destruction. All markets cycle, and the sharp resin price decrease seen in Q4 is a fairly natural back-end result to the massive rally of the first two quarters of 2021.
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Unless there is significant disruption to the global economic recovery, resin producers eventually will manage to tip the supply/demand balance back in their favor and begin another bull run, knowing that processors could accept higher resin prices. Indeed, PE producers have mostly nominated a $0.04/lb January price increase, but the timing may be premature, notes the PlasticsExchange.
PE trading volumes were limited in the final week of 2021: Some processors secured material for early January needs, but many market participants had already concluded their business for the year.
Spot levels were mostly flat across PE commodity grades after coming off sharply in previous weeks. Supplies improved substantially during December, including less liquid grades like low-density (LD) and linear-low-density (LLD) PE injection, which had been scarce. High-density (HD) PE for Blow Mold and Injection as well as LDPE Film grades became quite loose, while LLDPE for Film became uncharacteristically tight across all butene, hexene and octene grades.
PE grades end 2021 at elevated price levels
Despite the lack of price movement in the domestic spot market this past week and a bearish downward trend in pricing over the past two quarters, all PE grades ended 2021 at elevated levels compared with the end of 2020 within a range of $0.15 to 0.24/lb, depending on grade. December PE contracts should confirm a decrease between $0.05 and 0.07/lb, bringing Q4 price relief between $0.15 and 0.17/lb. This will leave PE contracts up a net $0.26 to 0.28/lb for the year. Producers have already made an effort to stem the slide in contracts with a collective push to raise prices for January, announcing increases at an average of $0.04/lb, including one initiative at $0.07/lb. The PlasticsExchange notes that it is too early to gauge the prospect of a timely implementation of a nominated increase for January, as it may take additional time to better balance the market. Should producers not find success with an increase in January, they could realize a better opportunity in February, writes the Chicago-based resin clearinghouse in its Market Update.
PP market activity rebounds
PP market activity was a bit better as the year drew to a close. Completed volumes increased from the previous several weeks with a good mix of homo- and co-polymer changing hands. Deeply discounted off-grade railcars continued to flow, and Houston-based resellers sought to liquidate positions as much as possible, partly to avoid end-of-year inventory taxes. Falling monomer costs, wider material availability, and large swaths of railcars in December — the most the PlasticsExchange has seen in 18 months — contributed to the bearish sentiment and motivated discounting. Co- and homo-polymer came down another $0.02 to 0.04/lb in the final days of 2021, bringing both commodity grades below the $1.00/lb mark for the first time in 11 months. In light of the lower price trend throughout December and further distancing from record highs seen in the second quarter, end-of-year 2021 pricing was well above where levels stood at the end of 2020 by a good $0.13 to 0.15/lb, writes the PlasticsExchange.
Co-polymer PP also ended December at an $0.08/lb premium to homo-polymer PP, which is the first time in nearly seven months that the spread between both grades was less than a dime in the spot market. The co-polymer PP premium was driven by the severe impact to supply and demand in the months following winter storm Uri, but Friday’s decline to an $0.08/lb premium was still well above the $0.02 to 0.06/lb premium that was seen throughout 2020.
Given the ample amount of material offered and continuous discounts made to spot buyers, the PlasticsExchange fully expects another margin-related nickel to come off for PP contracts. On top of a dime drop for the December PGP contract, that potentially would mean a $0.15/lb decline for December PP. PP contracts saw a significant decrease during the fourth quarter: While there is some variance among participants, the decline was in the vicinity of $0.38/lb. Notwithstanding this price relief, PP contracts will enter 2022 around $0.15/lb higher than where they began in 2021.
Read the full Market Update, including news about PGP pricing and energy futures, on the PlasticsExchange website.