Activity in the spot resin markets pulled back a bit last week, as higher prices and recently receding monomer costs pushed resin buyers to the sidelines to observe, reports the PlasticsExchange (Chicago) in its Market Update.
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Railcar offers of both polyethylene (PE) and polypropylene (PP) began to flow stronger toward the end of the week, resulting in decent accumulation. Resellers, also viewing the end of the quarter, started to seek outlets for their aged inventory. While the PP market is still essentially oversold with limited excess capacity, imports have been heavy and have had an impact on supply. This week’s sharp decline in forward PGP levels will likely deflate importers’ enthusiasm for new purchases. PE buyers are looking for producers to ease high- and low-density contracts in June, matching the $0.03/lb decrease that many received for linear low-density contracts in May.
Spot PE trading started the week slowly, but turned up the heat as the week wore on; all in all, the PlasticsExchange describes transacted volumes as only average. Deal making became more difficult as asking prices for some PE grades inched higher. Buyers that needed material paid up, while others who did not feel pressure to procure were happy to sit on the sidelines, not sensing any real threat of a long-term bullish price trend. The PlasticsExchange reports that its PE prices were generally flat, with a slight uptick in high density for injection and a downtick in blowmolding. Low-density PE for film remains snugly supplied. Producers have continued to absorb the vast majority of new PE production and add it to inventory for future (export) sale, rather than bleed it into the domestic market, which would negatively impact prices.
Collective upstream PE inventories have mushroomed to a record 4.8 billion lb, a full 50% more than the 3.2 billion lb at the end of October, which was the aftermath of the hurricane. PE exports have been growing and actually surpassed 1 billion lb in May, but export growth needs to accelerate quicker in order to move all the added production. In the meantime, PE reactors were throttled back to the low 90% range in May, but still generated another (small) build. North American PE processors have yet to truly reap the rewards in the form of lower prices. After several failed attempts, some question the validity of the $0.03/lb contract increase that is still floating out there and are calling for an official rescind of the nomination.
After a very strong start to the month, which saw soaring monomer prices fuel short-term resin demand, PP trading slowed substantially this past week. PP prices had been climbing along with monomer and began to crimp demand among those who could afford to wait out the increases. There was the potential for another sharp PP contract increase for June, some of which has been relieved from the recently deflating PGP levels. Prices along the PP supply chain have been very volatile, notes the PlasticsExchange, and this rally feels a lot like it did in the beginning of 2018, when runaway PGP prices created cost-push PP price increases, which soon busted.
This past week, resellers continued to offer material at elevated prices, looking to get extra value from their inventories, but many processors took a moment to let the new higher price level sink in. By the end of the week, importers with uncommitted resin on the water became nervous and eased asking prices; the top could be in. PP prices never quite realized their potential during this current rally, so while monomer costs are subsiding, resin levels only eased a cent this past week. It will be very interesting to see how the markets play out in the last two weeks of June, writes the PlasticsExchange.
Read the full Market Update on the PlasticsExchange website.