Weekly resin report: Commodity-grade PE resins experience price erosion

It’s the calm after the storm for spot resin markets. Activity slowed considerably last week compared with the fervent pace of the six weeks following highly disruptive Hurricane Harvey, reports the PlasticsExchange (Chicago) in its Market Update. Curtailed production and logistics constraints had initially encouraged processors to chase spot resin to fill supply gaps, which drove polyethylene (PE) and polypropylene (PP) prices sharply higher. Now that the vast majority of impacted petrochemical plants have returned to fully operational status, however, resin buyers have backed away from the market. 

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With three new major PE plants up and running, purchasers have become uninterested in procuring resin until prices return to pre-storm levels or below. As such, prompt demand has diminished and prices for most commodity-grade PE resins have been eroding, with losses averaging $0.02/lb this past week; improved availability of ultra-tight HDPE injection resins caused a full nickel drop in prices.

Spot PP prices were mostly steady, with some grades a little lower and a penny of expanded premium slipping away from CoPP. 

Spot PE has been transitioning from a scarcely supplied seller's market as most hurricane-affected plants return online, resin imports begin to hit U.S. shores and three new PE resin plants ramp up production, writes the PlasticsExchange. However, even as spot PE prices retreat from post-hurricane highs, contract levels are playing catch up and continue to rise. All PE producers have now implemented $0.07/lb of increases, with some billing up an additional $0.03/lb for a total of $0.10/lb since August. HDPE copolymer for blowmolding remains tight. 

Harvey had an extreme impact on PE production. Many reactors were shut down for varying lengths, and operating rates only averaged 75% in September. Rapidly rising spot prices curtailed incremental exports, with less than 600 million pounds sent offshore, while domestic demand remained healthy. Together, overall demand contributed to a massive 435 million lb upstream inventory draw down, which was quite evident in tight Sept./Oct. supplies. Domestic and Houston PE prices remain well above international levels, but as U.S. conditions improve and new production seeks an outlet, Houston prices should begin to fall to facilitate stronger and more typical exports. It will be difficult for the domestic PE market to maintain a massive premium over exports for an extended period, so PE for domestic consumption is expected to see pressure ahead. 

Spot PP trading was slightly better than average. The PlasticsExchange observed a steady stream of buy orders, but supply was not always easily found—prime was noticeably tighter than off grade. HoPP prices were mostly firm, while CoPP was a tad heavy, losing a cent or so of its premium. Storm-affected PP production was pulled back to just 83% of capacity in September and prices soared as producers implemented a series of cost-push price increases and leveraged tight supply/demand dynamics to expand production margins. PP contracts have risen about $0.12/lb, including $0.015 to 0.02/lb in October. 

While producers will continue to seek to expand margins, the PlasticsExchange believes the market also will be heavily influenced by PGP monomer costs ahead. While PP prices took a small dip off cycle highs, somewhat in sympathy with eroding PE levels, PP is expected to stay relatively firm as there is no new production on the horizon. Still, the import arbitrage is not wide enough for huge volumes of speculative PP to be brought to the United States. 

Read the full Market Update on the PlasticsExchange website.

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