Spot resin trading improved a bit last week compared with the previous week, but that’s not saying much, since the volumes fell well short of the average weekly performance during the first quarter of 2020, reports the PlasticsExchange in its Market Update.
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Prices for all commodity grade resins continued to slide and most polyethylene (PE) and polypropylene (PP) materials peeled off another penny. The beginning of May will mark the first instances of states re-opening their economies and we are all optimistic that we can quickly get back to business as usual and move past this disruptive world event, said the PlasticsExchange. Until then, the reseller community as a whole will continue to grind this out and try to move its high-cost inventory with minimal loss. It is a delicate dance in this very competitive arena, as fresh railcar offers are well-discounted, while material for immediate shipment maintains an eroding premium.
April PE contracts appear to be settling with a $0.04/lb decrease, essentially wiping away the increase that was implemented in January. PP producers are battling a small penny or so PGP cost decrease in April against an effort to expand resin margins a bit. The PlasticsExchange still expects to see PP contracts steady, at best, with the likelihood of a small decrease. Incremental resin exports have become very difficult, considering general uncertainty and competitive offers from other regions. However, large swathes of material are reportedly still selling to offshore locations at deeply discounted prices, either direct or through several major exporters.
Spot PE trading continued to be far removed from the hectic pace in the first part of the year. It was fully expected that a tougher demand environment would develop as the globe continues to work through stay-at-home orders, said the PlasticsExchange. It has been difficult to move large slugs of material into the domestic market, as processors seek minimal supplies and wait for both cheaper material and improved demand. Spot prices at the Chicago-based resin clearinghouse mostly lost a penny last week; the lone resin that shed $0.02/lb was low-density PE film, which has started to loosen up. April contract prices seem to be settling $0.04/lb lower and large buyers will soon begin working on a May decrease, according to the PlasticsExchange.
China seems to have COVID-19 in its tailwinds and has been advantageously buying material at aggressive prices to fill up its coffers. Traders from other regions also have been sniffing for fire-sale type resin deals from the United States as storage becomes limited and domestic demand struggles.
The recent historic crude oil price plunge has essentially eliminated the huge, years-long competitive cost advantage that North American NGL–based PE producers have enjoyed over their international Naphtha-based counterparts. This has created a very serious upstream situation as the massive petrochemical capacity expansions built over the past several years were primarily developed for the export of resin. Aside from worldwide resin demand taking a huge coronavirus hit, the loss of easily exporting incremental pounds from North America will likely require the short term rationing of resin production; if longer lasting, it may lead to the actual shutdown of some crackers and reactors.
It was a relatively good week for spot PP trading, considering the overall situation. Completed volumes favored railcars over truckloads; co-polymer PP was the main mover, and prime sold more than wide spec. Resin supply outstripped demand and prices ended the week another penny lower, with deeper discounts seen for Houston shipments as producers favored the quick return of their railcars.
Domestic availability remained ample and truckload supply caught up, as multiple resellers sent their nationwide inventory lists to the PlasticsExchange trading desk looking to lighten positions as lower priced railcars begin hitting packaging lines. April PGP has not settled yet, but a one- to two-cent decrease is anticipated. PP producers, on the other hand, are trying to increase margins a tad by keeping contracts flat. We have thought for some time, given low inventory levels, that some limited margin expansion would make sense, but it’s been an uphill battle for U.S. producers to secure, said the PlasticsExchange.
Read the full Market Update on the PlasticsExchange website.