Weekly resin report: Polyethylene market sentiment shifts from bearish to moderately bullish

The spot resin markets were slow to begin the new year, writes the PlasticsExchange (Chicago) in its weekly Market Update, and the volume of completed transactions was below average during the holiday-shortened week. While spot demand was also muted, some processors needed material, and prices for both polyethylene (PE) and polypropylene (PP) continued to press higher, which brought gains of $0.005 to 0.02/lb spread among grades. Resin exports have been very strong, and based on the pace and congestion at Houston area warehouses, it’s possible that new records could have been achieved in December. 

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PE trading was challenged by a lack of liquidity, which was no surprise given the holiday-shortened week. The PlasticsExchange reports not seeing a meaningful flow of railcar offers, though some fresh supply began to show on Jan. 5. Processors seeking material were served by resellers’ inventoried stocks, which were also relatively limited. Logistics constraints persisted: Railcars have been delayed by congestion in the Gulf, Houston packaging lines remained backed-up and trucker availability was scarce. Overall, PE market sentiment has shifted from bearish to moderately bullish, and is now buoyed a bit by the $0.05/lb increase that has been nominated for February contracts. 

Prices for most grades of PE edged up another half-cent, continuing the trend that began in December. The market has risen as much as $0.035/lb over the past month, though HDPE has lagged behind. LDPE for film, which has remained particularly scarce, added a full penny this past week. While PE prices indeed rallied back through most of December, the bulk of the volume was concluded at lower prices earlier in the month. There appears to be some inconsistency regarding December contract pricing, but they seem to be down $0.02/lb on average, according to the PlasticsExchange. 

Spot PP prices tacked on another $0.02/lb during the first week of January, as processors and resellers alike chased limited resin availability, while PGP monomer prices screamed higher. PP producers throttled back operating rates in November and December, which pressured the monomer market in December. This led to the $0.04/lb break in PGP monomer contracts, which was largely passed downstream to contract PP resin buyers. However, the lack of production, coupled with heavy exports, also left the market short of supply and triggered a sharp recovery in spot prices. 

Spot PP prices had been trading at a deep discount to contracts, but the quick reversal during December has closed much of the gap. PP contracts are now poised to jump in January, as producers will look to recover their increased feedstock costs. With pricing power tipped back into the hands of suppliers, if reduced production and sizable exports continue, margin-enhancing increases are very possible, as well. However, before the market gets ahead of itself, it’s important to note that rapidly rising prices can quickly shut down the export arbitrage and instead encourage the influx of foreign material as was seen during the first half of 2016.

Read the full Market Update on the PlasticsExchange website.

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