The first weeks of the new year saw a strong flow of both resin buyer requests and seller offers, with a high percentage of opportunities coming across the PlasticsExchange trading desk being filled as transactions. In fact, completed volumes so far in January are already the highest the resin clearinghouse has experienced since July. Prompt resin availability seemed to thin out as the week wore on. By Jan. 21, several grades were outright difficult to find with underlying demand remaining, reports the PlasticsExchange in its Market Update. The commodity resin market had been embroiled in an extended down leg of the cycle with almost constant price erosion before managing steady the past few weeks. Supply/demand dynamics seemed to have just crossed over the week of Jan. 17, at least in the short term, and spot prices for both polyethylene (PE) and polypropylene (PP) markets rose $0.02 to 0.03/lb, depending on grade. These were the first meaningful gains since the summer.
PE producers push for $0.04/lb increase on contracts
As the spot market exhibits firmness and the first signs of prices bottoming out, at least for the moment, it brings current price increase initiatives back to the forefront. PE producers have a $0.04/lb price increase on the table for January contracts. When initially nominated during December, it appeared that the increase was pie in the sky, with best hopes to stem the slide in resin prices that eroded $0.15 to 0.17/lb during the quarter. While it still seems unlikely that an increase can take hold this month, producers have announced another slew of contract increases for February, which also average $0.04/lb, so there is some additional upward pricing pressure.
In late December, it seemed that PGP contracts could lop off at least another nickel in January, but by mid-month, spot monomer had regained most of the discount and now the gap has been completely closed. Consequently, the PlasticsExchange expects a rollover in January PGP costs and minimal movement in PP contracts. Spot PGP rose a bit more last week. If levels hold, February PGP contract are already pointing to a modest gain.
Supply tightens on PE Blow Mold and Injection grades
During a busy PE trading week, a good smattering of high-density (HD), low-density (LD) and linear-low-density (LLD) PE grades transacted, while spot prices found a meaningful $0.02 to 0.03/lb uptick for the first time since late July 2021. Blow Mold and Injection grades, which had loosened in the last two months of 2021, re-tightened heading into the second half of January. LDPE Injection grades remained fairly scarce, especially high flow. Film grades were the preferred resins, with an exceptionally large amount of LDPE and LLDPE Film changing hands. LLDPE Film grades, including all butene, hexene, octene, and metallocene grades, have been exceedingly tight, particularly those fully formulated with additives, so prime lots were scooped up immediately, reports the PlasticsExchange.
January PE contracts have yet to be finalized, and the assumption is that they will roll flat. The $0.04/lb nomination will be on the table for February, and major resin producers have also announced their intention to increase contracts by an additional $0.04/lb next month, with one outlier initiative at $0.05/lb on HDPE and LDPE, and $0.07/lb on LLDPE. The proposed price increase on LLDPE comes amid tighter supply and availability and a planned turnaround reported at one facility in Texas. Film grade resins are also expected to see an impact because of tight availability for slip additives from one large supplier following a fire and subsequent force majeure on products from its facility in Memphis earlier in the month.
High-flow PP resins remain scarce
PP activity continued its strong pace to start the year. Demand picked up on the heels of more balanced supply/demand fundamentals and increasing energy and feedstock costs, which were enough to lift resin spot prices by $0.02/lb for the first time since early June 2021. Completed deals were distributed among major commodity grades, with relatively large volumes completed in homo-polymer PP low and mid-melt, both Prime and off grade, as well as solid volumes in co-polymer PP high melt and Prime 20 melt no break. High-flow PP materials remain scarce, partly due to an ongoing shortage of peroxide, which helps to increase PP melt flow. There were inklings for a moderate decrease in January PP contracts near the beginning of the month, as spot prices had fallen and the market was still awash with resin. Both of these situations have shifted, however: PGP has recovered, eliminating the anticipated PGP contract decrease, and spot resin supplies have tightened, reducing the need for producers to give back more of the margin expansion earned during 2021.
It seems that January PP contracts will now settle steady, though some are still hopeful for a modest decrease in margin/price, which is, of course, possible.
The early stages in the potential reversal of pricing trend comes with much of the burdensome overhang for PP now gone, following six to seven months of reduced production and a decline of more than 120 million pounds from producers’ collective resin inventory during December. There have also been six to seven straight months of below-average PP purchases by processors, particularly the past four months, as they have largely worked down their inventories expecting even lower prices ahead. As plenty of buyers have been on the sidelines, there is underlying demand that is ready to come to market if and when buyers feel that the price decline has ended. If so, current spot supplies would likely be inadequate to fulfill a large rush of demand. The international resin markets have also firmed up, supported by rising energy and regional feedstock costs, which raises the export floor as well as import costs, further discouraging resin imports.
This is not a loud massive bullish call at the moment, writes the PlasticsExchange in its Market Update, adding that it no longer has a bearish perspective. “We have surpassed a neutral outlook for PP (and to a lesser extent PE) and, indeed, have a friendly tone to pricing,” notes the resin clearinghouse. “To this end, amid elevated trading volumes, we have been selectively and strategically adding both PE and PP to our market-making inventories as we feel there is limited downside and a greater potential for upside movement that could eventually become substantial, as producers are well aware that processors can afford a higher price point than current levels, as proven by the 2021 market.”
Read the full Market Update, including news about PGP pricing and energy futures, on the PlasticsExchange website.