Spot resin trading picked up substantially last week following a lackluster start to the month. The market lull initially continued through May 10, and the loss of upward pricing momentum coupled with softer monomer costs dragged down polyethylene (PE) and polypropylene (PP) prices a cent at the PlasticsExchange trading desk. It was the first weekly decline the Chicago-based resin clearinghouse has seen in its marketplace since December 2021. Delayed railcars then spurred aggressive buying from both resellers and processors, who scooped up some 60 truckloads of packaged resin to cover immediate needs. Undeterred by their inability to secure the $0.06 to 0.07/lb increase in April, PE producers remained steadfast in their intent to implement the increase in May while also pushing back their next $0.06 to 0.07/lb increase until June, reports the PlasticsExchange in its Market Update.
Considering the flat April settlement, PE contracts are up $0.04/lb so far in 2022. PP producers also are poised to give their $0.06/lb margin-enhancing increase another shot in May. A nomination to increase June contracts has emerged, as well. April PP contracts followed PGP monomer down a cent in April, leaving PP contracts up a net $0.12/lb so far in 2022.
No price relief in sight for energy and transportation
PE activity and completed volumes ramped back up as the week wore on, though pricing did not recoup the penny lost on May 9. The small spot price drop in PE does not necessarily mean price relief is on the way, since producers continue to push for contract price increases for May and June, as high energy and transportation costs persist. While off-grade railcars still flowed, prime domestic railcar offerings were again limited and producers were generally asking for the full $0.06/lb increase. Linear-low-density (LLD) PE and low-density (LD) PE Film grades dominated as the biggest movers, with solid demand seen from both US and Mexican buyers, reports the PlasticsExchange.
Several large groups of high-density (HD) PE for Injection also sold into export with some Blow Mold sales sprinkled in. Initial April estimates indicate that PE production was trimmed to about 87% of capacity, but the 230 million fewer pounds made were mostly offset by lower sales. While exports in April still generated about 35% of total PE sales and ran about 9% more than the trailing 12-month average, they were well off the near-record shipments seen in March. With Houston warehouses still packed to the brim and more than eight billion pounds of additional capacity still expected to come online later this year, incremental export pricing will need to become more competitive to other international regions to boost volumes and maintain a fairly balanced supply/demand dynamic in the United States. Until then, price increases are on the table and geopolitical and economic concerns remain. Logistics constraints and upward pricing pressure brought on by strong demand, alongside rising energy and operational costs, also muddy the picture.
Prime PE railcars scarce
PP activity was soft at the start of last week and prices eased $0.01/lb on the heels of lower feedstock costs. However, resin trading picked up during the balance of the week. While the PlasticsExchange recorded the strongest weekly PP sales in more than a month, it chose to exercise caution as it peeled off some of its market-making inventories while closely monitoring supply chains and the geopolitical landscape. Completed volumes were well spread out with Prime homo-polymer (Ho) PP Raffia as the biggest mover, followed by HoPP mid-high melt. Though there was good demand for high impact and No Break resins, co-polymer (Co) PP sales did not hold pace, partly due to the lack of competitively priced material. As for PE, prime railcars were scarce and expensive while well-priced off-grade railcars were more available. The import arbitration is open and some relatively light exports are streaming in, though nowhere near the volumes seen a year ago.
Meanwhile, early April estimates showed PP operating rates below average, while domestic and export sales were about normal, which resulted in a small draw from inventory, as producers continue to juggle volatile input costs, supply-chain challenges, and inflationary pressures affecting the economy. This comes as producers are still seeking a $0.06/lb margin-enhancing increase for May contracts, to somewhat offset a potential double-digit decrease in the upcoming May PGP contracts, writes the PlasticsExchange. A lone producer has also announced the intention to implement a margin-enhancing increase of $0.05/lb in June. The price initiatives also come as one producer remains on PP force majeure, while two others are on sales allocation programs. Not to mention that we are just a couple weeks away from the start of hurricane season.