Weekly resin report: PE market rally has legs

The spot resin markets maintained their heightened level of activity last week, reports the PlasticsExchange (Chicago) in its Market Update. The flow of resin offers was about average and there was a relatively high percentage of success in filling realistic spot opportunities.

Polyethylene (PE) prices averaged about a penny higher, with variance amongst grades, while polypropylene (PP) slid a couple of cents, erasing some of the gains from earlier in the month. Energy markets eased, NGLs were mildly mixed, propylene was flat and ethylene prices tumbled.

The spot PE market continued to push higher, extending the rally that has been in place for a little over a month. Spot has consistently ticked about a half cent higher every few days, working to recover the early 2016 losses. While the contract market moves in larger chunks, the spot market sees smaller and more frequent price adjustments, which reflect the subtle changes in the supply/demand balance. Spot pricing is also a great indicator of broader market moves, including the likelihood of contract increases taking hold. In this case, by mid-month the spot PE market had already risen $0.025 to 0.03/lb with a very firm undertone.

PE producers successfully implemented their $0.05/lb price increase for March contracts. This increase completely recouped the nickel decrease that was spread between January and February. Absent a catastrophic event, such a quick market reversal is rare, as there is usually at least a month of flat pricing after a decrease. Strong exports, rapidly recovering crude oil and ethylene monomer costs supported this market move.

Gulf crackers are in the midst of turnaround season and a number of resin reactors are facing planned and unexpected maintenance, so supplies could remain tight. If so, producers are ready with another $0.04/lb price increase on the table for April. While buyers in need of resin are unquestionably paying a premium to satisfy immediate needs, for those that bought extra inventory, spot seems high. The market is feeling a little bit extended at the moment, and the fast $0.06/lb break in ethylene has relieved the cost-push argument for further contract advancement, but as we have seen time and again, anything is possible, writes the PlasticsExchange.

Spot PP trading was solid and numerous deals were done in both homo and co-polymer. The $0.06/lb margin-enhancing price increase was already implemented in January/February, and while this month’s $0.015/lb rise in contract PGP monomer was initially passed through to March resin contracts, it has become contentious. Producers nominated another $0.03/lb increase for April, but the market seems to have gotten ahead of itself.

The inflow of foreign resin is really being felt in the market; supplies have definitely improved and most commodity grades of HoPP and CoPP are now available around the country. The packaging is mostly in bags, but at a cost; the resin can be repacked into boxes or delivered in bulk. Imported PP is well-priced—for many processors, it has become a viable sourcing option. Quite a number of prime railcars were offered into the spot market for late-month shipment, providing evidence that orders are indeed being shifted away from domestic supplies.

These competitive offers are starting to affect domestic pricing, as well. The spot PP market began the week firmer but ultimately dropped a couple cents; off-grade prices in Houston slipped a tad more. At least one major PP producer, appearing to recognize that U.S. resin prices have advanced too far, offered to decrease April contracts by $0.03 to 0.05/lb depending on grade; others have yet to officially follow, reports the PlasticsExchange.

Read the full Market Update on the PlasticsExchange website.