Resin Report: Sourcing Challenges Remain for Processors

Spot prices for polyethylene (PE) and polypropylene (PP) resins retreated further last week, shedding another $0.01 to 0.03/lb from the hefty premiums built up earlier this year, reports the PlasticsExchange in its Market Update. Producers have been running the reactors, and suppliers that held on to extra material as a hedge against potential market disruptions have been selling off excess material. Traders and resellers also were seen unwinding positions. While overall availability for both key groups of PE and PP resins continued to grow, some grades were still challenging to source for prompt shipment. Processors welcomed the price relief but generally settled for small orders, waiting for even lower prices to come down the pike.  

The sustained downtrend in domestic spot pricing positions the market for another decrease in the upcoming November contract settlements, according to the PlasticsExchange. That would represent a second consecutive monthly decline for PE and a third consecutive drop for PP. “This would be in line with our expectations for additional Q4 price erosion that could potentially include decreases for December, as well,” writes the PlasticsExchange. The Chicago-based resin clearinghouse cautions, however, that the market can still shift: Unplanned market disruptions are always possible, such as the declarations of force majeure for PE and PP that emerged this month. Also, winter is coming, and eyes will be focused on operations and logistics along the Gulf Coast, especially in Texas, for the next few months.

Importers lack incentives

A combination of logistical challenges, costly freight, and rising warehouse costs persist while port congestion, especially on the West Coast, keeps importers from bringing in more resin. The shipping logjam is expected to continue into 2022, but there are forecasts for container traffic woes to ease slightly after the December holidays and Lunar New Year. While there may be little incentive for buyers to bring in less expensive overseas resin, producers are exporting significant quantities of PE offshore and PP into Mexico.  

PE trading was relatively steady at the PlasticsExchange the week of Nov. 8. The supply/demand dynamic was tipped to the bearish side, leading most commodity grades down another $0.02 to 0.03/lb. More buying opportunities started to show for PE, but the downtrend in pricing is likely to maintain a gradual pace.

Another PE resin contract decrease on horizon

Low-density (LD) PE Injection was the only grade that held firm amid still tight supplies. With the continued spot weakness, PE contracts are expected to decrease again in November, losing perhaps a nickel like they did in October. Linear-low-density (LLD) PE Injection and Rotomolding resins also commanded a strong premium because of their limited availability, although that has been slowly improving. Film grades for LDPE and LLDPE continue to fall, although hexene remains in short supply, maintaining an unusually large premium over butene. In the meantime, high-density (HD) PE for Injection, Blow Molding, and Film have all become more plentiful, while availability for some pipe and film grades of HDPE is still strained following a recent force majeure in Texas earlier in the month.

Domestic US PP activity remained limited, as supply improved alongside uninspired demand, and completed volumes were seen lagging, reports the PlasticsExchange. Homo- and co-polymer PP prices held steady for much of the week but then shed a penny by Friday, as abundant supply and further declines in feedstock PGP spot levels pressured resin lower. Traders who had been unable to move their last few prime PP loads found opportunities at well over $1.00/lb to sell processors who needed to fill the gap between railcars deliveries.

New force majeure on 23 PP grades

Another price decrease is expected this month in the vicinity of the $.09 to 0.10/lb decline seen in October. Although overall supply and availability have improved, some high-flow material is constrained following a fresh force majeure declared on 23 grades of PP on Nov. 9. The force majeure was due to a raw material shortage that was impacting the production of PP grades that use peroxide-based additives.

Producer inventories coming into November were flush by historical standards, but the Houston spot market still was not flooded with material. As domestic supplies improve, imported materials have mostly dried up. Hence, traders continue to look for available product and are running into logistical challenges as ready-to-ship material is in the wrong location and exorbitant freight costs pinched margins to unworkable levels.

While buyers are indeed working down their own supplies, they also know that producers are well stocked and that traders have inventories of most grades ready to ship, writes the PlasticsExchange. This has changed the market from being tight with challenged processor inventories and long supplier lead times to average processor inventories and shorter supplier lead times. Buyers are holding off longer as a result, letting the market play out since restocking material is not as difficult as it had been during the first three quarters of the year.  

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