The spot resin markets continued to transact at an elevated pace last week, though order flow became less consistent and there were little lulls in trading activity, which was something we had not seen in a while, writes the PlasticsExchange in its Market Update. During the quieter moments, participants questioned whether emerging developments — weaker PGP monomer prices, the restart of many resin plants, and appearance of fresh spot off-grade offers — were signals that the market was ready to come undone. Then, reality would set in, as resin remains grossly undersupplied. The mid-February winter storm, which shut down the vast majority of US resin plants, could ultimately lead to the loss of five billion pounds or more of resin production, digging a very deep hole in inventories throughout the supply chain, reports the PlasticsExchange.
Despite some demand destruction, very heavy imports, and the lack of incremental exports, the PlasticsExchange predicts that it will take considerable time for producers to back-fill orders, restock inventories, lift allocations, and unwind force majeure declarations. Spot prices remained well above rising contract levels the week of March 15, as processors competed for limited material, quickly rebuilding market momentum as if this raging bull market had not skipped a beat.
By the end of the week, polyethylene (PE) prices trudged another $0.02/lb higher, bringing the March gain to $0.10/lb. Producers secured their March $0.07/lb increase and nominated as much as $0.09/lb more for April. Ethylene monomer continued to be very tight and spot ended the week at $0.575/lb; short supplies have limited resin production at some plants. High-density PE resins were still the tightest of the commodity grades. Prime blow molding material has been virtually non-existent in the spot market, and sales have reached $1.25/lb. Some blow molding imports are already on the water and the next sailing dates are early April. Linear-low-density (LLD) PE film grades are also exceedingly snug — delivered prices are generally above $1.00/lb, with the higher alpha-olefins commanding $1.10/lb or more. Low-density PE, while also incredibly short, is a bit more available and prices only carry a moderate premium to LLDPE.
While the majority of PE and polypropylene (PP) plants have restarted, a considerable amount of off-grade resin has been made. The percentage of Prime has been growing, adds the PlasticsExchange, but is unavailable for spot sales. Widespec offers made some noise in the marketplace, as resellers generally opt not to buy off grade for inventory, especially at these historically high prices. Multiple players quickly offer out the railcars, and they reverberate, so 10 cars can misleadingly seem like 30 or 40. Nonetheless, by the time the offers make it through the system, the resin has usually been snatched up, and disappointed buyers continue to seek material.
PP prices bucked their recent gentle softening and held firm this past week. Spot PP prices were unwilling to cede more than the nickel relief already seen from the early March peak, after soaring some $0.50/lb during February. March PGP ended the week just shy of $0.60/lb. PlasticsExchange analysts expect a double-digit decrease in March monomer contracts, which will pass through to resin buyers with contracts tied to monomer. The cost decrease will be partially offset by the $0.06/lb margin increase, which producers will rightfully secure due to limited sales caused by outages and short supplies.
PP homo-polymers sold the most this past week — there was very good demand for higher 20-40 melts and Raffia grade. Every offer for co-polymer PP and Random Clarified came and went in a heartbeat, including large volumes of imports, some of which have yet to even leave international ports, reports the PlasticsExchange. Spot co-polymer PP sales have strictly been limited by availability, with substantial remaining underlying demand. There has been an ongoing industry effort to import considerable volumes of PP to help counterbalance some of the lost production. Most of the material has been pre-sold to processors, and some uncommitted material has been made available for spot sales. There is some homo- and co-polymer PP and RcPP NX8000 on the water, and the next sailing dates are early April.
Some processors are fatigued by the constant upward pricing pressure and the challenges to find material, even at these lofty levels. Others have begrudgingly acclimated to this much higher pricing level, having passed through their rapidly rising costs. The PlasticsExchange notes in its update that it is seeing some processors, who might not be able to pass through their rising costs, instead profitably selling off some of their resin, either on hand or on order, rather than making incremental product. This has certainly been a unique market environment and it will be interesting to see how it all continues to play out. The author of the PlasticsExchange Market Update recalls the wisdom shared by an industry mentor many years ago — the cure for high prices is high prices. “But, we have not seen that take effect in this market, yet,” adds the author.
Read the full Market Update on the PlasticsExchange website.