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Weekly Resin Report: PE Supply/Demand Balance Tightens

A series of turnarounds, outages, and delays coupled with thinning upstream inventories resulting from massive exports has placed the polyethylene (PE) supply/demand balance in a tight situation. Meanwhile, polypropylene inventories are at historic lows.

In like a lion, out like a . . . lion? That’s kind of what happened to the resin markets in July. As for the weeks in between? Meh, not so much, reports the PlasticsExchange in its Market Update.

In early July, as more and more US manufacturers ramped back up after being shut down because of the pandemic, they went shopping for resin to process. Whether they knew it or not, they were competing with international buyers for available US supply. Despite a price increase for export resin, super-strong demand quickly soaked up general allotments, and producers were essentially sold out of export material by mid-month, according to the PlasticsExchange. The early strong sales boost provided producers with confidence to firmly pursue their domestic July price increases. This included $0.05/lb for polyethylene (PE) and, with PGP monomer costs quickly escalating, a similar cost-push hike for polypropylene (PP). Some incredulous processors only picked away or outright passed on early-month offerings, writes the PlasticsExchange, while savvy traders and resellers scooped up the spot material that, in retrospect, proved to be a great deal. As offers sold, they were replaced with ever-rising asking prices resulting in a demand lull, as processors digested the higher levels. During the last seven to eight days of the month, processors came to the table en masse ready to buy, and the late-month surge pushed completed volume at the PlasticsExchange trading desk to its best level since January. 

The spot PE market finished July sizzling, as volumes increased into month end while processors awoke after a slow week to buy ahead of yet another $0.05/lb price increase, which is on the table for August. The PlasticsExchange trading desk took a flurry of fresh orders, and transactions came together with relative ease. Availability was tight for some grades like low-density PE and linear-low-density (LLD) PE film, LLDPE injection, and high-molecular-weight film, while few Prime railcars of any grade were available. This allowed resellers to continue to sell off truckload after truckload of their inventories into this rally. Though spot prices mostly consolidated recent gains, some grades pressed a bit higher.

A series of turnarounds, outages, and delays coupled with thinning upstream inventories resulting from massive exports has placed the supply/demand balance in a tight situation. Although exports seem to be cooling as prices rise, producers have positioned themselves with few incremental pounds to offer beyond typical allocations. So even though the PE market already secured $0.09/lb of increases these past two months, this next nickel does appear to have some legs. Rarely has there been only one increase on the table, and a September increase announcement is anticipated, especially with hurricane season well under way and already proving to be active. 

PP trading was very strong the last week of July — buyers rushed to the spot market to secure material as their throughput has been recovering and they sensed still higher prices ahead. Strong demand and much thinner availability sent prices soaring another $0.03/lb, bringing the two-week gain to a clean nickel. Railcar availability was scarce, and with prices on the rise, producers could afford to wait until August to move more material. Although most grades could be sourced in truckload volumes, resellers were only willing to sell limited loads before moving up with the market.

The overall PP market remains very tightly supplied, and PlasticsExchange analysts do not see it loosening much in the near term. Outages, turnarounds, and limited PGP monomer availability has crimped production, while excellent exports and returning domestic demand has placed PP inventories at historic lows. Manufacturing continues to strengthen after the COVID-19 slowdowns and, to top it off, we are still early in the hurricane season. Braskem's new plant will start production soon, but it will be some time until Prime material is consistently made and much of it is targeted for export. Since mid-June, spot PGP is up $0.125/lb, but in that same period, spot PP has risen just $0.08/lb, so it’s no wonder that PP producers are seeking a $0.03/lb margin-enhancing increase. July PP contracts are passing through the $0.06/lb PGP monomer increase and an August increase seems likely.

Read the full Market Update on the PlasticsExchange website.

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