Weekly resin report: Middle-East tensions, depleted inventories spur buying surge

Weekly resin report: Middle-East tensions, depleted inventories spur buying surge

Prices gained a cent and then gave it back as tensions subsided, but the proverbial bloom was off the rose, which highlighted the very real geopolitical risks that can affect our energy-derived resin markets.

Spot resin trading began the new year with a heavy flow of orders from both buyers and sellers, generating a high volume of completed transactions. The marketplace was spooked by military conflict in the Middle East, encouraging domestic buyers to secure additional material as a supply buffer, reports the PlasticsExchange (Chicago) in its weekly Market Update. Prices gained a cent and then gave it back as tensions subsided, but the proverbial bloom was off the rose, which highlighted the very real geopolitical risks that can affect our energy-derived resin markets. Export demand was also strong, as buyers sought material from the United States, the most cost-efficient resin producing region of the world.

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As usual, a polyethylene (PE) price increase is on the table for January with a moderate chance for implementation; polypropylene (PP) contracts currently are pointing to a very modest uptick. This was a heckuva start to 2020, writes the PlasticsExchange, adding if this past week is a trendsetter, we will all be looking forward to a very exciting year ahead.

The spot PE market continued to transact at the same frantic pace that ushered in 2020: In just seven trading days, completed volumes at the resin clearinghouse have already nearly matched the entirety of January 2019. Deals were struck for all commodity grades. While fresh producer railcar offers were slow to emerge, which is typical for the first week of the year, resellers’ inventories along with railcar sales from committed forecasts provided ample market liquidity to satisfy prompt demand.

Early in the week, processors rushed to restock materials that had dwindled into year-end; fear of escalating Middle East tensions injected extra urgency into the deal making. Subsequently, PE prices added another cent across the board. The market paused Wednesday as the situation calmed, and asking prices erased that cent, but demand picked right back up on Thursday and Friday to round out a very solid week at the PlasticsExchange trading desk. It is still uncertain whether spot pricing is really turning higher in a sustained way, but at the very least sentiment has shifted away from the apparent belief that prices will just go down forever. Producers have a fresh $0.04/lb price increase nominated for January, though it is still too early in the month to see if momentum can build to actually achieve implementation.

PP trading was very active. Deals were well diversified and there was solid demand for both homo- and co-polymer PP resins. Some of that was for immediate shipment, while other processors were just happy to secure additional well-priced resin for February usage. The PlasticsExchange expressed surprise at seeing a continuation of deeply discounted railcar offers, as it appeared that the strong December purge might have been sufficient to liquidate burdensome upstream inventories. Offers did return, however, priced to leave very little margin for producers—they were met by a fistful of purchase orders.

The market fell silent midweek as the industry digested the U.S./Iran situation, and then another surge of demand completed the week. Spot prices had ticked a cent higher and were then relieved of that penny, but there was unfilled demand at week’s end and the bottom end of the pricing spectrum had still cleaned up. PP contracts are pointing a tad higher for January and are likely to continue to follow PGP costs until producers make a stand to defend and rebuild margins.

Read the full Market Update on the PlasticsExchange website.

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