Spot market activity has at times been just as volatile as its pricing. The trading desk went from one of its slowest weeks, albeit shortened by the Thanksgiving holiday, to its highest volume week of the year, reports the PlasticsExchange (Chicago) in its Market Update. A steady, heavy flow of both fresh offers and processor orders resulted in the vast majority of do-able deals being brought to completion. Although energy and feedstock costs mostly moved considerably higher, resin prices continued lower, and that combination appears to have been a catalyst to spur good action.
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The polyethylene (PE) market was quite busy this past week, which spanned the end of November and the beginning of December. Spot material availability remained plentiful and, despite significant strength in the energy complex, PE prices continued to slide, with most grades shedding another cent. Incremental export demand has languished and Houston warehouses are currently full of resin with packaging lines running at capacity. Some of them are booked through the end of the year. Export demand perked up amid lower asking prices and the surge in upstream energy, but the log-jam in Houston could pose a problem if suppliers look to purge inventory in December.
November PE contracts were down $0.03/lb; processors have been limiting purchases, opting to work down inventories as they anticipate another decrease in December. In the meantime, buyers have been tapping the spot market, which has been well discounted to contracts, to fill in supply gaps along the way. As such, the PlasticsExchange reports seeing a notable uptick in demand for LDPE and LLDPE film grades. Although December resin markets often see sporadic activity, domestic demand is expected to continue to improve as purchases have lagged the past two months. Better buying activity will be somewhat offset by those processors desiring to limit year-end inventory.
Polypropylene (PP) trading was very active, as spot supplies of commodity resin remained amply available and prices continued to slide. November PP contracts declined an average of $0.06/lb, while spot prime and off-grade levels, particularly homopolymer, have fallen further, leading some participants to expect additional contract relief in December. Polypropylene supplies—domestic production along with tough to gauge import volumes—have outstripped demand, maintaining downward pressure on prices.
While the PP market has not been massively oversupplied, the burdensome overhang, coupled with overwhelmingly negative sentiment, has placed pricing power firmly in the hands of buyers. PP production margins have been compressed the past three quarters and have wiped away much of producers’ hard-fought margin expansion achieved during 2015. The PP market has had several failed rallies since the beginning of this summer, and this last down leg has brought prices back to the lowest level in seven years and are again compelling on a historic basis, according to the PlasticsExchange.
Read the full Market Update on the PlasticsExchange website.