While the pace slackened a tad compared with the week of August 15, when transacted volumes in the spot resin markets exceeded the entire first half of the month, transactions continued at a rapid rate last week, reports the PlasticsExchange (Chicago) in its Market Update.

Polyethylene (PE) prices were mostly steady to higher with penny gains seen in certain grades, as supplies continued to tighten ahead of the nickel increase nominated for September. While resellers and processors have been picking away at polypropylene (PP) supplies, spot offers just keep coming. With effort, PP prices gained as much as a cent. The market is in for a shock, however, as at least one producer has revised its $0.04/lb PP price increase to now include the imminently large jump in September PGP monomer costs.

The Spot PE market remained active, though the volume of fresh offers slowed. Processors were busy procuring well-priced material as the September $0.05/lb increase seems to have gained momentum even before the calendar turns. As current offers are purchased, the pickings have become slimmer with some grades—notably LDPE for film—outright difficult to source.

Although PE producers are largely vertically integrated, the pellet side of the business is getting squeezed by quickly rising feedstock costs. While the September price increase was initially viewed as a message to quash downstream calls for price relief, as time advanced and tight supply/demand dynamics persisted, it appeared that a good ole margin-expanding increase could very well take hold, writes the PlasticsExchange. With ethylene prices soaring—more than a dime in August alone—the cost-push argument could be the trifecta catalyst that helps PE producers secure their nickel increase in a timely fashion.

Spot PP trading was good, but not great. While the threat of a large price increase quickly taking hold is very real, and prices have indeed ticked a bit higher, ample resin supplies have kept a lid on market prices. Exports have been solid, with particular interest from Mexico, but the added demand has yet to clear the burdensome supply overhang.

Earlier this month, all PP producers issued a $0.04/lb price increase targeted for September. With a $0.035/lb rise in August PGP monomer contracts, it seemed like a reasonable attempt to cover rising costs, albeit a month behind. PGP prices then continued to advance, fueled by supply restrictions caused by both planned and unexpected outages in PDH, cracker and FCC facilities. The spot monomer market has jumped more than $0.10/lb in the past five weeks and, based on current levels, indicate another $0.07 to 0.09/lb jump in September PGP contracts.

Producers have spent a couple of years disengaging the lock-step correlation between monomer costs and resin prices, so the automatic pass-through mechanism is no longer fully intact. Given the abundance of material floating around the market and the spigot apparently still open with resin flowing strong, simple supply/demand dynamics have not been supportive of a full and timely implementation of even the $0.04/lb increase. Consequently, as the week drew to a close, at least one major PP producer revised its forthcoming price increase to also include the change in September PGP contracts. If other PP producers follow suit, the market could be eying a double-digit price increase, which has not been seen since January 2013.

Read the full Market Update on the PlasticsExchange website.