Spot resin trading was very active through Wednesday of last week, which marked the end of the month, reports the PlasticsExchange (Chicago), and then, crickets, as many buyers and sellers got an early start to their Labor Day weekend. Spot prices for both polyethylene (PE) and polypropylene (PP) continued to climb, with most commodity grades advancing another $0.005 to 0.01/lb. This came as no surprise, as processors and resellers were aggressively buying material ahead of pending price increases in September, but there was very little interest in material offered at $0.04 to 0.05/lb higher just a day later.
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The spot PE market was busy, contributing to the highest monthly trading volume for PlasticsExchange in years. Resin buyers were scooping up remaining well-priced offers ahead of the September price increase. As current offers were purchased from resellers, they were replaced with smaller volumes at higher price points. Few fresh railcar offers were available; producers were not seen pushing out generic prime resin at month end, which can be viewed as an expression of confidence in their $0.05/lb increase. Several producers also issued a $0.04/lb price increase for October, which could help solidify the September nickel and keep upward pressure on the market, reports the PlasticsExchange in its weekly Market Update.
Those PE offers made available at the end of the week, including generic prime railcars, were priced to reflect the full $0.05/lb increase. The prices instantly appeared out of reach, but as time ticks and producers hold firm, as is expected by PlasticsExchange analysts, these new levels could simply become the prevailing market. A quiet week ahead is anticipated, as many buyers stocked up in August, although those processors in need of quick resin deliveries will have little choice but to pay up for material. The spot market already moved several cents higher over the past few weeks, and the $0.05/lb increase has a very good chance of timely implementation.
Spot PP trading was solid, with prices adding another cent. Despite seemingly ample supplies, the pending $0.04/lb price increase should have legs. As such, buyers kicked it up a notch, procuring well-priced material that largely cleaned up offers that were still in the $0.40/lb range. Although the PP market appears to be heading still higher, suppliers with inventory were pleased to see better demand and unload material.
The $0.04/lb September nomination essentially covers the August contract PGP increase of $0.035/lb; however, spot monomer prices continued to rally throughout the month, leading to a $0.07/lb nomination for September PGP contracts. Consequently, producer action has been seen, including a revised and larger increase for September and a fresh nickel for October. However, consistency is lacking among producers, which could challenge implementation beyond the first $0.04/lb.
Over the past few years, PP contracts tied directly to monomer have been changed to be freely negotiated based on supply/demand conditions or tied to an index. Without the lock-step correlation, PP producers were able to greatly expand their margins during 2015 as monomer costs fell and resin prices were reduced, but to a lesser extent. With quickly escalating monomer costs currently at hand, however, there is no sure-fire way to pass along these rising monomer costs downstream.
It might come down to basic microeconomics. The recent run up in PGP, which has crimped PP margins, should lead to reduced operating rates and tighter supplies. If this rings true, we should see thinner availability in September and October, which would support higher PP prices. On the other hand, if producers continue to run their reactors near capacity, the supply overhang, which has still yet to clear, will likely restrict the magnitude of price advancement. In the meantime, the PlasticsExchange expects the $0.04/lb to find support in September.
Read the full Market Update on the PlasticsExchange website.