Weekly resin report: China’s chilling effect on spot PE prices

The spot resin markets finally chilled from their hectic pace, as the pending Chinese tariffs on U.S. polyethylene (PE) and polypropylene (PP) resins have begun to turn U.S. market sentiment negative, particularly for PE. Another down week in the crude oil markets has only added to this feeling, reports the PlasticsExchange (Chicago) in its Market Update.

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The flow of offers has continued. While spot PE prices have swung through cycles, producers have continued to manage domestic supply, even in the face of added production. To buyers’ frustration, contracts have been amazingly flat. Despite another attempt at a $0.03/lb price increase, with material backing up, the breaking point could finally be near. PP supply and demand is relatively in balance to tight; we expect a very modest cost-push increase for August contracts, writes the PlasticsExchange. 

The spot PE market slowed dramatically this past week, taking a heavy breather from the very busy pace seen for most of the past couple of months. Spot demand diminished greatly as buyers took a wait-and-see approach on new orders. The 25% Chinese tariffs on high-density PE and linear-low-density PE, which are scheduled to be implemented on Aug. 23, have really begun to disrupt the market, particularly in Houston, the major resin export hub. Traders that had booked sales to China have been diverting cargoes already on the water and, in many cases, simply not making new PE shipments to China, according to the PlasticsExchange. This has not only affected port activity, but is also jamming up the packaging warehouses. This developing situation has already been weighing on spot PE prices; as invoices start to come due, it could trigger another wave of trader/exporter selling. 

After a one month reprieve in inventory build, upstream PE supplies have surged again. They increased about 250 million pounds in July and now stand near an astounding 5 billion pounds, an increase of more than 1.7 billion pounds since October 2017. Unless production is throttled back substantially, and it ran nearly full in July, the backup of resin could soon begin to overburden the domestic market, leading to lower prices.

There is a $0.03/lb contract price increase nominated for August; however, the market is expected to roll flat, at most, while the case for a decrease is strengthening. Inquiries from other regions of the world have been flooding into the PlasticsExchange trading desk, as the opportunity to secure U.S. supply at opportunistic prices has begun. However, the strengthening U.S. dollar has added yet another factor to an increasingly difficult export environment. Unless the tariffs are resolved or alternative export channels are quickly opened, absent an unlikely weather event, all of the fundamentals are pointing to lower pricing ahead. 

Spot PP trading was slightly above average this past week. Demand was steady and prices edged up about a penny for both homopolymer and copolymer. However, a recent minor retreat in upstream monomer costs could limit the August contract increase to perhaps $0.02/lb or less, rather than $0.03/lb.

Spot PP availability increased incrementally for typical commodity grades, while some of the specialties remain scarce. Good volumes of PP material are again on the water heading to U.S. shores, some of which is still unsold, but a series of reactor turnarounds ahead in Asia/Pacific could hamper additional supplies. The Chinese tariffs should have little effect on PP, as exports are rather insignificant compared with PE.

Read the full Market Update on the PlasticsExchange website.

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