Weekly resin report: Following Harvey-induced price surge, PP market calms down

Amid challenging spot resin market conditions with scarce uncommitted resin up for grabs, the PlasticsExchange trading desk recorded the best week in its 17-year history last week. That despite the fact that it was a four-day holiday shortened period!

Cool Design
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With orders in hand from needy customers, most materials had a happy home before they were even sourced, reports the PlasticsExchange (Chicago) in its Market Update. Other offers that simply flowed in continued to come and go in the blink of an eye. There was very little negotiating, as availability trumped price, but there were few attempts at excessive profiteering at the reseller level, notes the PlasticsExchange. There are still pockets of both prime and off-grade supply available in Houston and around the country, it adds. 

Houston-area warehouses generally are back up to speed and a limited number of railcars are again on the move. Much of the shut petrochemical and plastics supply has begun to return back online, though the lost production will never be recovered. For detailed plant-by-plant information, go to Petrochem Wire (PCW), which has “masterfully covered the hurricane and its subsequent impact on the area’s petrochemical complexes and detailed lost production,” writes the PlasticsExchange.

Hurricane Harvey significantly disrupted Houston-area plastics production, leading to a series of force majeure letters and consequential material allocations. Processors in need of material rushed to the spot market to fill in their supply gaps. The bulk of the transacted volume has been polyethylene (PE), well distributed among HDPE for blowmolding, LDPE for film and foam and LLDPE film grades, with co-monomers represented, writes the PlasticsExchange. All injection resins including HD, LD and LL remain exceedingly scarce. To date, most of the hurricane-driven PE rally was realized in the immediate aftermath with a $0.065 to 0.10/lb increase already seen. Prices only pushed incrementally higher this past week, between $0.02 and 0.04/lb. 

Initially, the $0.03/lb PE increase slated for August was unlikely to take hold, but Hurricane Harvey came along to instead seal the deal with swift and full implementation. At the time, there were only two PE producers that had issued an additional $0.04/lb increase for September contracts, but after the storm, the balance of producers nominated their own $0.04/lb increases with target dates of either Sept. 15 or Oct. 1. Given the massive supply disruptions, the PlasticsExchange expects these additional increases to become solid. As new—although delayed once again—plastics plants come online, those increases and probably more are expected to peel back. 

The spot polypropylene (PP) market also was significantly more active, with the PlasticsExchange reporting that completed transactions were running well above average. The market was already in short supply ahead of the storm, and the lost production has highlighted the gap. Very little uncommitted warehoused material was available after the initial demand surge, though a trickle of off-grade railcars has continued to flow. The industry gulped hard when PP prices rushed up $0.11/lb right after the hurricane; it has taken some time for processors to digest the sharp spike, and prices only edged up another penny or two this past week. These higher prices have revealed, however, some additional supply that was apparently held back, as some suppliers seemingly have found this new level compelling, notes the PlasticsExchange. 

PP producers on average implemented a $0.01 to 0.02/lb price increase in August; just $0.005/lb was cost-push following a rise in PGP monomer prices, while the rest was a modest margin gain. A much larger jump is anticipated for September contracts, as monomer costs have been rising and the balance of the $0.03/lb margin increase should now find easy implementation.

Based on current conditions and well indicated by spot levels, the PlasticsExchange now estimates a total August/September increase of around $0.10/lb, perhaps more. This could still change as market dynamics for both PGP monomer and PP resin remain fluid.

Read the full Market Update on the PlasticsExchange website.

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