Weekly resin report: Crude oil, feedstock costs rising

Heightened activity continued in the spot resin markets the first week of March, reports the PlasticsExchange (Chicago) in its weekly update. Transacted volumes were particularly strong, and all commodity grades of polyethylene (PE) and polypropylene (PP) rose a penny. In sharp contrast to the end of February, domestic PE railcar availability became very scarce. Fresh offers for the Houston export market were also notably absent. On the other hand, PP supplies improved, as imports arrived in greater quantities. 

Crude oil has rallied more than 20% in the past three weeks, instilling a new sense of bullish sentiment into the market. Feedstock costs are also increasing as crackers enter their busy maintenance season, spurring ethylene’s recent $0.08/lb recovery rally.

After a lengthy seven-month downward trend, the PE market appears to be consolidating, according to the PlasticsExchange. Indeed, spot material was purged at deep discounts at the end of February, leaving producers with few fresh offers to share in the beginning of March. The resin that was made available this past week was priced several cents higher. While exporters were not eager to jump at the new number, traders did come in to scoop up any remaining cheap material, lifting the bottom end of prices.

Spot PE demand was pretty solid, according to PlasticsExchange analysts, with buyers willing to pay up a bit for material. Unfilled orders remained at the end of the week. It is worth noting that much of the overflow demand was bidding at price levels no longer available in the market. The reseller community is not void of material, but with replacement costs rising, they, too, increased their asking prices and PE priced in the $0.40/lb range is quickly becoming a thing of the past. International PE prices continued to tick higher, providing additional support to the market.

PE producers nominated a $0.05/lb price increase for March contracts. The spot market is definitely firmer and PlasticsExchange analysts anticipate further strength in the coming weeks, especially if energy and feedstock costs continue to rally. They add, however, that there is a lot of ground to recover in order to eliminate the discount that spot resin has held to contracts. Most processors seem to be in pretty good shape with inventory levels and are likely to resist the increase. In the meantime, contract orders are being placed at the higher price, but with the caveat of price protection given the very real chance that the increase will be postponed until April.

The PP market is becoming a bit more dynamic, as large quantities of imported resin begin to create an impact on supply, which has been lacking for the last five to six quarters. For the first time since December, off-grade railcars are lingering as opposed to quickly being placed to a processor. This has put some moderate pressure on the spot market. The contract market has remained firm, as very large buyers rely on direct prime railcars for their primary supply.

March should be an equalizing month as producers look to secure the balance of their $0.06/lb margin-enhancing increase on any remaining accounts. PP producers have begun to issue letters nominating another $0.03/lb increase for April.

Read the full Market Update on the PlasticsExchange website.