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Weekly resin report: Leanest PE supplies in two years, according to producers

Weekly resin report: Leanest PE supplies in two years, according to producers

Spot resin trading was sporadic the week of September 19, reports the PlasticsExchange (Chicago) in its Market Update. The market is still struggling with sluggish demand and generally snug polyethylene (PE) supplies. There were spurts of activity, however: Several larger polypropylene (PP) transactions shifted total completed volumes in favor of PP, which is rare. Commodity resin prices were mixed: PE was mostly higher, while PP slipped amid heavy offerings. Producers have found success securing their $0.05/lb PE price increase. There will be a varying degree of increases implemented for PP contracts, likely averaging around the $0.04/lb sought by most producers.

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Spot PE activity was uncharacteristically lackluster this past week, as overall resin supplies remained relatively tight and prices continued to advance. Producers have all but officially secured their $0.05/lb increase for September contracts, which brings the total gain to $0.14/lb since March. The PE market has now cleanly recovered the full $0.14/lb of decreases that were implemented between August 2015 and February 2016. The PlasticsExchange sends kudos to PE producers for masterfully managing supply/demand over the past 12 months amid average production rates above 93%.

The spot PE market has been challenged this month by a lack of interest. While there have been plenty of spot deals to satisfy processors’ normal needs and suppliers’ desire to move material, neither buyers nor sellers have felt massive urgency to transact. PE pricing had been firming throughout the summer, and processors, wary of the September $0.05/lb increase, procured a significant amount of excess material in August. In fact, domestic demand in August was the most since March 2007, according to the PlasticsExchange. While exports to some regions have slowed, overall offshore sales have remained stellar and August shipments were the highest in five months. All that resin had to come from somewhere . . .

Producers drew down nearly 300 million lb from their collective inventories last month, leaving them with their leanest supplies in two years. While all PE resins have been tight, some producers are also still dealing with production issues, leaving some material nearly absent from the spot market. There were, however, signs of better material availability creeping back into play. HDPE for blowmolding and injection was a tad looser, though HMWPE for film was still very snug. LDPE film with additives is still super scarce, while a bit more barefoot material has appeared. LDPE and LLDPE injection grades are still as tight as a drum, especially prime. There was a peep from at least one producer seeking another increase for October, but the rest of the bunch did not nominate.

Every once in a while, PP trading takes the spotlight, and this was one of those weeks. There was plenty of HoPP and CoPP around—both prime and off grade— as several major resellers began marketing their uncommitted inventory at reduced price levels. A number of buyers that have been waiting on the sidelines swooped in to procure relatively large volumes of resin that had become discounted.

When PGP monomer rallied $0.12/lb from mid-July to mid-August, historically correlated PP resin seemed poised also to soar, so processors and traders alike stocked up on well-priced material. Nonetheless, production has remained strong and the resin has kept coming, reducing buyers’ fears that PP prices would continue to recover. While prices did rise, the momentum then ceased. Consequently, the recent PP rally began to fade and the spot market gave back $0.01 to 0.02/lb this past week.

While September PP contracts will likely jump the $0.04/lb which most producers have nominated, it really only covers the $0.035/lb PGP increase taken in August. Monomer prices have since advanced further, to the level that supports another nickel increase, but September PGP contract negotiations, which usually conclude early in the month, have yet to yield a settlement. Cost push pressures that warrant an increase should be supported by a lack of supply, resulting from reduced production. PlasticsExchange analysts say that they have yet to see evidence that PP reactors have been throttled back, and they believe the October increase will be a challenge based on heavy supplies.

Read the full Market Update on the PlasticsExchange website.

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