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Resin Report: Tight Spot Market Remains Vulnerable to Disruption, Geopolitical or Otherwise

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Any additional disruptions to the market and the delicate supply chain could further complicate the resin markets and pricing, reports the PlasticsExchange.

Polyethylene (PE) and polypropylene (PP) prices soared to new highs for the year last week, before PP peeled off a penny on Friday. Processors continued to seek material for both immediate use and to pad inventories during this volatile geopolitical and economic period, reported the Plastics Exchange in its Market Update. The mini feeding frenzy seemed to chill later in the week, as rapidly rising energy and feedstock prices moderated, providing participants with a moment to contemplate.

Polypropylene transaction pricing varies widely

Spot offerings remained thin all week. Very few prime PP railcars were available, and they were priced based on March PGP plus margin. With spot monomer jumping around, it was a challenge to lock in transactions without firm pricing, writes the PlasticsExchange. PP transactions varied widely in price, as the top end of the market continued higher while some lower-end materials languished. Most good off-grade PP cars showed up without a price, and the PlasticsExchange said it had to place a bid to see if the price was acceptable. For PE in both the Houston and domestic markets, buyers willing to pay the full $0.04/lb price increase nominated for March contracts found some resin. Overall, though, good volumes of both PE and PP resins transacted last week, more so in truckloads than railcars.

Spot resin prices bottomed out in December and had already been moving higher during the first quarter. The most recent demand surge was largely inspired by the Russian invasion of Ukraine, which still could lead to a much larger conflict and impact key energy and derivative supplies in Europe and the rest of the world. Many key nations and corporations have piled on sanctions against Russia, including the latest energy import ban announced by the United States, which will definitely impact trade flows across many markets, including the resin sector. These sanctions come at a time when the industry already has been impacted by rising costs and extended logistics delays from packaging warehouses and freight providers. Although upstream resin inventories have recovered from the year-ago production disruptions, spot markets have remained tightly supplied. Any additional disruptions to the market and the delicate supply chain, be it geopolitical or otherwise, could further complicate the resin markets and pricing. The spread between current resin price levels and 2021 record highs is quite wide, reports the PlasticsExchange, with spot PE grades as much as $0.31/lb below peak prices last year and PP prices $0.40/lb below last year’s peak.

Polyethylene trading remains elevated

While less robust than it had been in recent weeks, PE trading and volumes remained elevated. Most grades extended gains by another cent, as prompt availability remained limited and overall demand was elevated. Low-density (LD) PE and linear-low-density (LLD) PE Film were the primary movers this past week, followed by LLDPE Injection. A smattering of deals were made across the balance of the other commodity PE grades. High-density (HD) PE Blow Mold, which had seen a significant amount of buying interest and volume changing hands in the previous two weeks, saw reduced interest. In light of the late-week slowdown, most prime PE grades remain scarcely available despite warehouses full to the brim because of ongoing logistical export constraints, according to the PlasticsExchange.

The slight easing in activity has not deterred the collective push for a March price increase, and some producers have now nominated an April increase, as well, with an average of $0.06/lb. North American PE producers are building on the moderate upward momentum and keeping the market tightly supplied. They derive the vast majority of their feedstocks from ethane (natural gas) and have a huge cost advantage compared to their international counterparts, who mostly derive their feedstocks from naphtha (crude oil). Domestic PE producers have kept operating rates high and seem comfortable building inventories rather than inundating the market with their excess supply. However, producers will need to figure out a way to export more material moving forward, especially as new production capacity is on track to come online during the year, writes the PlasticsExchange.

Homo- and co-polymer polypropylene prices reach yearly high

PP trading was solid, although it slowed a bit from the strong activity seen in late February/early March, fueled by strong buyer demand on the heels of rising energy/feedstock costs and general supply uncertainty. Tight supplies crimped completed PP volumes during the first half of the week, as more deals could have been done if more well-priced resin was available. Retreating energy and feedstock prices pushed buyers to the sidelines in the back half of the week. Despite the reflective pause, homo-polymer (Ho) PP and co-polymer (Co) PP prices added another couple of cents early in the week, sending both grades to yearly highs before shaving off a penny last Friday. Prime HoPP mid-melts was the top seller this week at the PlasticsExchange trading desk, with high flow CoPP following right behind.

As a reminder, the lack of availability comes as upstream PP inventories have backed off peak levels, so producers are in no rush to flood the market with material. Overseas imports remain an option, and some fresh deals have been booked, but ship space remains limited, key ports are still congested, and nearby warehouse space is running a hefty premium. March PP contracts are still pointing to a strong single-digit cost-push increase, but energy prices already may have peaked.

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

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