Spot resin trading remained somewhat tepid the week of June 19 and, echoing last week’s report, completed volumes again tallied below average, writes the PlasticsExchange in its Market Update. Nevertheless, polyethylene (PE) and polypropylene (PP) prices firmed by as much as a penny amid tightening supplies.
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While buyer interest has indeed waned, the flow of fresh railcars has also begun to slow and resellers’ inventories have been thinning out with higher asking prices emerging. PE contracts had the potential to continue lower in June, but managed to hold flat. PP contracts had the opportunity to advance, but also just rolled steady. A whole bunch of nothing. The week ahead brings the end of the year’s first half, and the PlasticsExchange notes that it would not be surprising to see a certain level of supply purge ensue and a fresh market to begin after the traditional slow start to July.
In the spot PE market, processors maintained a negative outlook on pricing and just picked away with smaller sized orders. The supply side feels differently: Despite a hefty three-month upstream inventory build, producers have been looking not only to stop the slide, but to turn the market higher for maybe one last hurrah in August. The increase has yet to be nominated. Producers did successfully resist the call for additional price relief in June after the $0.03/lb decrease in May; however, a quick upswing reversal could be a challenge.
Crude oil prices continue to slide, aiding the competitiveness of international PE producers who derive the majority of their ethylene feedstocks from the Crude/Naphtha stream. As international PE costs decline, the export clearing price, which provides a Houston floor for incremental offshore sales, also softens. There is already a large gap between export and domestic levels, which casts a dark shadow on a potential domestic price increase. In the meantime, PE producers have been running their reactors hard and fresh production remains strong. Meanwhile, many processors already claim to be well-supplied through July and will push again for a contract decrease next month.
PP trading activity continued to improve, as buyers have become a tad more aggressive with their orders and spot demand has shown signs of strengthening. Now that the monomer market has bottomed, and there is little reason to think that resin prices could decline further, some processor re-stocking makes sense, according to the PlasticsExchange. Spot PP homopolymer remains available, though prices have ticked a few cents higher. PP copolymer has become scarce and commands a growing premium in the spot market. PP contracts soared $0.205/lb in Q1 and considering a flat June, decreased $0.135/lb in Q2.
A couple years back and after significant effort, PP contracts were disconnected from their tight correlation to volatile PGP monomer costs. However, after monomer prices soared again starting in January 2017, fast-and-furious correlated cost-push increases were implemented downstream through the chain. We are again seeing the balance between supply and demand tipping back in favor of producers. Downstream demand continues to slowly grow and there are no new resin production complexes on the near horizon. The import phenomena of 2016 burned many suppliers and the import arbitrage is not wide open, so a massive influx of PP seems unlikely. The PlasticsExchange believes the market is now setting up for another series of margin-expanding increases, though the players should not consider success to be a slam dunk.
Read the full Market Update on the PlasticsExchange website.