Weekly resin report: PE transactions edge higher; PP holds steady

Spot resin trading improved with a good assortment of transactions completed among various commodity grades of polyethylene (PE), whereas lighter volumes of polypropylene (PP) changed hands this past week, reports the PlasticsExchange (Chicago) in its weekly Market Update.

After a slow start to the month, PE buyers became a little more aggressive, as they have been actively working down relatively well-priced August material. Spot PE prices continued to rise as the industry has been digesting the September $0.05/lb price increase.

Spot PP prices were mostly steady and have lost some upside momentum despite the pending average $0.04/lb price increase.

The PlasticsExchange trading desk saw increased PE activity after a very quiet first week of the month, as buyers began returning to the market seeking material. Domestic railcars also began to show, but they were mostly wide spec; a few prime railcar offers were made available up to the full $0.05/lb. Spot HDPE prices added a penny across the board, LLDPE film grades saw at least similar gains, while still scarce LDPE for film jumped a deuce. Some processors expressed displeasure of asking prices that reflected nearly the full $0.05/lb price increase, but still came back to buy the resin, as no lower offers emerged.

Spot PP trading continued to hum along at an average pace and prices only managed steady, which the PlasticsExchange deemed disappointing given significant cost-push price increase pressures. Spot PP prices had recovered several cents from the cycle low, and even more when considering the blowout trough pricing for domestic off grade and prime exports during July. However, as U.S. prices firmed, incremental export demand faded.

The market started to gain steam to the upside, but the rally seems to have fizzled out, at least for now. Processors bought extra inventory through August, hedging against the potential for pricing to run to the upside, but availability of well-priced material has persisted, easing the upside fear. High monomer costs and dwindling production margins have not yet translated into reduced resin production and tighter supplies. Resellers, still relatively flush with resin, have acquiesced to customer calls to ease prices a tad to secure orders.

While processors recognize the September $0.04/lb price increase theoretically covers the increase in August PGP monomer contracts, most PP contracts have been disengaged from the lock-step correlation to monomer costs. This will present a significant challenge for producers to push through the imminent September PGP price increase. It is really now up to supply/demand dynamics and direct negotiations, along with subjective consulting price indices, to help seal the monthly change in PP contracts, according to the PlasticsExchange.

While the bulk of the September $0.04/lb increase is expected to be implemented, we would need to see a drop in production and resin supplies to achieve a significant advance in PP prices. In the meantime, non-integrated producer margins have been squeezed and a cure could be higher PP prices. On the other hand, to reestablish margins, propylene monomer could also retreat, according to the PlasticsExchange.

Read the full Market Update on the PlasticsExchange website.