The spot resin markets were slow this past holiday-shortened week, reports the PlasticsExchange (Chicago) in its Market Update. Trading activity diminished significantly from August, when processors were very aggressively stocking up on polyethylene (PE) and polypropylene (PP) ahead of the price increases nominated for September. Few fresh railcar offers have been shown to the secondary market during this young month, and the available material has been priced to reflect the increases, stifling spot demand.

Spot PE trading chilled, as the calendar changed to September. Fresh resin offers were limited the first week of the month, and spot prices continued to inch higher, while contract purchases have been invoiced up the full nickel. With tight supplies and upward spot market momentum, processors saw the writing on the wall and beefed up their resin buying in August ahead of this month’s $0.05/lb increase. With buyers and sellers now each on the sidelines, it will be interesting to see who blinks first, writes the PlasticsExchange.

Producers with very deep pockets can afford to be more patient, according to PlasticsExchange analysts. Several PE producers are still challenged with production issues and, while contract buyers seem to have no issue getting material—if they paid up the September nickel increase—there have been slim pickings in the spot arena. Ethylene supplies are still snug because of continued cracker outages, which also led to rapidly rising monomer costs that have doubled since the beginning of February. As players posture, time is marching on; when mid-month passes, suppliers will remind their customers that there is another $0.04/lb increase nominated for October. Major film extruders already issued their own price hikes downstream to pass along the higher costs in case the September increase sticks.

Spot PP trading was about average, with a slowdown in speculative buying as resin kept coming. Large buyers have been probing the market to see if there is still material around, but their actual multi-railcar purchase orders have been elusive. Smaller buyers that regularly tap the secondary market for their resin supply have been paying up, but not egregiously. The spot PP market has definitely moved into a higher price level, but after gaining several cents from its early August low, it seems to have stalled in its ascent. Resin traders and resellers still have inventory and have been willing to meet demand when called upon.

Producers are intent to implement their $0.04/lb increase nominated for September, which will help them cover their higher PGP monomer costs, at least the $0.035/lb jump in August. However, feedstock costs, which continued to soar, have not yet tempered reactor operating rates, which appear to be maintained in the mid-90% range. It seems that resin production is too high to dry up the burdensome overhang, as the spot PP market continues to be amply supplied with material. Unless reactors are throttled back, producers will be challenged to drive contract prices much higher and offset the imminent September PGP contract increase, which has been nominated at $0.07/lb. The PlasticsExchange says that it remains fairly bullish on the PP market, but not as much as when prices were in the lower $0.40/lb and PGP was quickly on the rise.

Without a mechanism in place to raise PP resin prices commensurate with the increase in PGP monomer costs, resin production will need to be restricted to tighten the supply/demand balance. Only with tighter supplies will producers gain true pricing power, which will be necessary to firmly secure the next price increase. We are not seeing that . . . yet, notes the PlasticsExchange.

Read the full Market Update on the PlasticsExchange website.