Spot resin trading was challenged this past week, reports the PlasticsExchange (Chicago) in its Market Update, caused by negative sentiment pushing buyers further away from the market. Overall polyethylene (PE) and polypropylene (PP) levels were steady to weaker, and the market experienced some consolidation along with growing availability of both commodity resin groups at the lower end of their current price ranges. Fresh railcar offers flowed fairly freely; while some sold, it was more common to see offers pile up.
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The sharp discount between spot and contract PE prices should once again complicate producers’ efforts to implement their average $0.03/lb increase in November. The PlasticsExchange expects PP contracts to decline by about a dime, commensurate with the decrease seen in PGP monomer contracts. Weak crude oil markets, which are the key cost driver for international resin, continue to lean on Houston resin prices.
The best that can be said about the spot PE market last week is that it trudged along—overall deal flow was noticeably subdued and completed volumes fell below average. Spot prices were mostly steady to lower, as resellers continued to sell off inventory and limit fresh purchases following their general desire to de-stock. As such, the PlasticsExchange notes a recent trend of resellers securing spot truckloads instead of full railcars for their customers’ needs in an effort to better time larger purchases as they anticipate cheaper resin ahead. The same can be said for processors opting to work off material on hand, cautious about replenishing their coffers. These savvy buyers seem to be positioning for special buying opportunities that often occur toward the end of the year.
Although there is still an average $0.03/lb PE price increase on the table, implementation seems very unlikely, as spot is well discounted to contracts and demand is soft. While PE producers have been stingy with domestic decreases, a growing number of market participants feel that contract price relief is warranted. With crude oil continuing to move lower—it had a huge single-day drop last week of $4.24/barrel—while natural gas pushes higher, North American PE producers are in a rare tough spot as their margins are getting squeezed. If natural gas holds this higher level and natural gas liquids recover further, domestic feedstock costs should rise while international crude–driven feedstock costs fall and resin export prices soften. PE export prices will sensibly need to drop in order to move large volumes of incremental resin, maintain the recent level of record exports and keep overly burdensome inventories from developing, writes the PlasticsExchange.
PP trading was challenged this past week as buyers limited their purchases, even as prices fell. While overall PP prices were steady with a negative undertone, resin availability has improved as resellers sought to sell off their uncommitted warehoused material. The PlasticsExchange expects November PP contracts to follow PGP contracts down around $0.10/lb, perhaps a tad less, as producers try to expand margins. While spot PP is weak, it has already been well discounted to contracts, and given the generally tight supply/demand dynamics, it might not see the same sharp declines as contracts. Falling domestic PP prices have largely eliminated the import arbitrage; a decrease in speculative imports and, in turn, perhaps even tighter PP supplies come January may be in the offing.
Read the full Market Update on the PlasticsExchange website.