Weekly resin report: Cost of hesitation is loss of available supply in fast-paced market

Weekly resin report: Cost of hesitation is loss of available supply in fast-paced market

Prices for all polyethylene and polypropylene grades continued to move higher last week in a tightly supplied environment.

The spot resin markets moderated from their fervent pace, but completed volumes were still better than average the first week of February, according to the PlasticsExchange (Chicago). Prices for all polyethylene (PE) and polypropylene (PP) grades continued to move higher in this cost-push and tightly supplied environment. Domestic resin demand was very good, at least from those seeking to procure material at week-ago levels; this is currently a fast market, where the cost of hesitation is usually the loss of available supply. Somewhat offsetting: Incremental export sales were hampered by higher Houston levels and limited offerings, providing a chance for area warehouses to catch up on the packaging backlog. 

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January PE contracts were mostly steady, but there is growing likelihood that the $0.05/lb price increase nominated for February will be implemented. January PP contracts jumped $0.10/lb on average and will rise $0.06 to 0.08/lb again in February, as producers seek to pass along the imminent increase in their February PGP monomer costs. 

PE trading was solid, writes the PlasticsExchange: Processor demand was very good against limited availability. Most prime commodity grades added $0.01/lb this past week with wide-spec prices shoring up swiftly, leaving few obviously cheap offers available. Spot PE levels have consistently rallied since bottoming out in early December; prices are now up $0.05 to 0.06/lb from the lows, with some variance among grades. Considering the $0.02/lb decrease that most accounts saw in December, spot resin pressed to a premium by mid-January and has continued to advance, lending strong credence to the $0.05/lb increase slated for this month. 

While all commodity PE resins can currently be procured as spot, the volumes offered at the cheapest levels are usually low. As offers are taken, the next best price is at least a penny higher. LDPE and LLDPE film grades are still the most scarce; packaged material for immediate shipment has been hindered by shipping and packing delays. Several more producers have nominated an additional $0.06/lb increase for March. While it is way too early to comment on its viability, at a minimum it will help reinforce the current nickel. 

PP trading activity remained busy. There was a flurry of buying as January came to a close last week. PP has returned to its volatile ways; large back-to-back monthly increases to start the year, which will total around $0.18/lb, have spurred a quick 40 to 50% rise in spot prices, including two cents this past week. Processors were again active buyers, seeking to procure additional material in the midst of this rapidly rising market. However, there has been an upward vacuum in domestic railcar pricing and resellers/traders with inventory are cautious to only dole out limited volumes at a given price. So, completing transactions is not easy: There is a wide gap between buy and sell levels and it is a challenge to push the new price to reluctant, albeit needy, buyers. 

The PP rally still has legs and it does not appear that the market is ready to find a top, so processors will need to push these higher prices further downstream. The furious price rise will, however, crimp domestic demand, even though we have certainly seen these levels and much higher before. Tight PP supplies, soaring monomer costs and resin prices have also closed the high-volume export arbitrage and we expect to see the imports begin to hit the American coasts later this month. Still, even when monomer costs do eventually subside, we expect producers to only partially share the savings to regain some of the margin they lost during the better part of last year.

Read the full Market Update on the PlasticsExchange website.

TAGS: Materials
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