Weekly resin report: Polyethylene traders on edge about tariffs

The spot resin markets were rocking last week, a welcome change from the holiday-interrupted first week of the month, reports the PlasticsExchange (Chicago) in its Market Update. Buyers were serious, practically showing up with orders in hand, and suppliers were quick to respond with competitive offers.

Polyethylene (PE) producers are once again seeking to implement their old $0.03/lb price increase, but downstream players aren’t buying it. In fact, they tend to think a decrease should be in the cards. Polypropylene (PP) contracts likely will see little change in July. Most PE and PP grades eased a cent this past week. 

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Spot PE trading returned from the holiday break with a bang, writes the PlasticsExchange. Market participants made up for lost time, mostly procuring material for near-term delivery dates and keeping orders small, perhaps anticipating lower pricing ahead. Spot PE prices decreased a penny last week, except for linear low-density PE injection, which held flat.

Producers continued to reiterate their intention to increase contract prices $0.03/lb in July, which at this point seems unlikely based on current spot market activity. In June, producers’ collective PE inventories drew down more than 90 million pounds after building in six of the previous seven months, according to the PlasticsExchange. This draw can be attributed to record-high export sales, which were above a billion pounds for the second month in a row, coupled with reduced operating rates, which came in just below 90%. Despite the draw, inventory levels are still massive at over 4.7 billion pounds. 

As the USA versus everyone trade conflict heats up, PE players are becoming quite concerned. Some traders began lowering asking prices trying to thin out inventories in preparation for retaliatory tariffs taking hold—material that would normally be exported to China would suddenly become 25% more expensive, thus crushing demand. Although there is not a firm date for all of these tariffs to take full effect, some traders have already diverted cargoes heading to China to be stored in other countries in hopes that this will blow over quickly. The economics of it will surely affect U.S. ports, as well, as they have been adding infrastructure to accommodate the large expansions being undertaken by the petrochemical Industry. 

Spot PP trading also was very busy, with a steady flow of buyer bids and seller offers pelting the market. Prices slid a cent. The vast majority of domestic offers were wide-spec railcars, while prime needs were often filled with packaged imports. Processors picked away on mostly truckload orders, as elevated prices in the 70s and into the 80s discouraged higher volume purchases, writes the PlasticsExchange. Still, the market is getting used to seeing these prices and sticker shock has worn off; that could provide this cycle some added longevity. The reseller community was also an active participant this past week, as some had been limiting inventories at these heightened levels and fell short of material to fill customer needs. The PlasticsExchange reports that its anonymous trading platform facilitated numerous inter-dealer transactions to fill in these supply gaps.

The first half of 2018 has been quite volatile price-wise; however, the PlasticsExchange expects to see little change in July contracts, even as spot prices jump around.

Read the full Market Update on the PlasticsExchange website.