Weekly Resin Report: Polypropylene Contracts Poised to Jump by Double Digits

The resin market began the new year on a familiar note: Supply/demand fundamentals were tight and a multitude of buyers chased limited material availability, reports the PlasticsExchange in its Market Update.

Polyethylene (PE) and polypropylene (PP) prices continued their trek higher, and even accelerated their gains, supported by continued production outages, both planned and unexpected, along with rapidly rising energy and feedstock costs. Both key commodity resin sectors scored big gains in December, and are heading even higher in January.

PP contracts are again poised to jump by double digits as a result of a cost-push increase and margin enhancement. Although it is still very early in the month, all signs are pointing toward the implementation of the January PE increase, averaging 0.05/lb like the December hike. Export demand remains robust, but the highest bidders for US PE now come from Latin America, as soaring ocean freight rates have become prohibitive, shifting around the export arbitrage and regional trade. Even as prices reach dizzying heights, spot material is hard to come by — a light is yet to be seen at the end of this tunnel. Processors that are quick to act are able to procure material; those that play coy and try to negotiate hard are quickly passed by in favor of other buyers in line. 

PE trading roared back to life after the New Year rang in. The spot market had largely been starved of material during December and buyers returned from the holidays in need of resin, writes the PlasticsExchange. Several ongoing production issues have greatly restricted PE supplies; since the start of the year, a massive monomer rally, spurred along by cracker outages, has further complicated the situation. Ethylene prices have now sprinted into the mid $0.40s/lb. Notwithstanding that producers are mostly integrated back to ethane and the $0.24/lb PE contract gains since June, producers are still facing a margin squeeze and are given an option to either produce incremental PE or simply sell some monomer into the spot market.

The cost-push pressures have emboldened producers to implement their January price increase, and this additional nickel will bring the total contract gains since June to $0.29/lb. While that is painful downstream, it does encourage resin production. Spot PE prices have been quick to react and most grades rose by $0.03 to 0.05/lb last week alone. Many resellers have very light inventories and replacement material has been a challenge, so even as prices rise, they are only doling out limited volumes and choosing their sales wisely. 

Spot PP trading was very active, with buyers scrambling to secure material as prices ran higher. Trading volumes at the PlasticsExchange again were restricted by the lack of resin availability, leaving considerable demand unsatisfied. These runaway prices are also surely causing some demand destruction. The PP market has been categorically undersupplied because of continued production disruptions and extended force majeure declarations — at least five producers are facing challenges. Off-grade railcars came and went and even prime market-making supplies have dwindled to dismal levels, as replacement material has been hard to source.

Imports on the water have mostly been sold and high ocean freight costs have eaten into the incentive to bring additional cargoes. Spot PP prices added another $0.04/lb this past week, but certain grades like high-flow co-polymer PP, No Break, and Random Clarified resins were virtually non-existent in the spot market. If material could be found, price gains would exceed these levels. PP prices have been on an upward tear: December contracts jumped $0.14/lb including a $0.04/lb margin enhancement; given current PGP costs and another nickel nominated for margin, the January increase could even eclipse the December gain.

Read the full Market Update on the PlasticsExchange website.