Weekly resin report: PP imports gain converts

Spot resin trading activity slowed a bit the week of March 7, reports the PlasticsExchange (Chicago) in its weekly update. Although the flow of offers was lighter, completed volumes were still solid. Crude oil rallied further, supporting international polyethylene (PE) markets, which, in turn, has raised floor pricing in Houston. Producers continued to hold back domestic railcar offers, but material was available for the asking, albeit at higher numbers. Polypropylene (PP) supplies were spotty; market liquidity was provided by a smattering of domestic off-grade materials along with prime imports.

The past few weeks, the PE market has gone from sloppy, grossly oversupplied and in virtual free fall to disciplined, tightly supplied and ever-firming price-wise, note PlasticsExchange analysts. The cracker turnaround season has played its fair share in this changing environment, as restricted production has sent ethylene costs soaring more than a dime. For the first time in ages, lower resin prices and higher monomer costs actually created a serious margin squeeze on the low end of the PE market. As such, HDPE prices have recently seen the greatest recovery.

The spot PE market continued to tick higher, closing the gap held to premium-priced contracts. All commodity PE resins added at least a cent, with $0.015/lb gains seen for HDPE film and blowmolding grades. The market’s upward momentum has gained traction, spurred by rapidly rising energy and feedstock costs. PE producers have further flexed their price-increase muscle, expressing firm intent to raise contracts by $0.05/lb in March. An additional $0.04/lb increase has begun to be floated for April, which should provide processors with added incentive to procure, according to the PlasticsExchange.

While the PE market has definitely bottomed and the ensuing upswing has begun, the March $0.05/lb increase is far from a forgone conclusion. Processors are just receiving their late-shipping February railcars, which capped off a two-month $0.05/lb decrease, and they are resisting giving back their hard-fought savings. Late month purchasing was robust, as producers were doling out material at deep discounts. Processors claim to be in a healthy inventory position and will resist the snap-back increase; they acknowledge, however, that if the market stays its current course, they will likely pay more for their April contract purchases.

Spot PP trading is hard, yet rewarding work. The market has begun to develop a multi-pronged and fractured structure--smaller volumes and difficult sourcing--but PlasticExchange’s network of trading partners generally yields needed supply. Five straight quarters of margin-enhancing price increases have created the convergence between the once higher spot market and contract prices. Interim cycles also generate small pockets of available off-grade railcars; despite being well-priced, they are sometimes challenging to place, notes the PlasticsExchange.

PP prices are on the rise, with spot levels up another penny last week and March contracts poised to jump even more.

Production limitations have rendered direct PP railcar supplies insufficient to satisfy still-strong domestic demand. Market participants, particularly in the reseller community, have recognized that the supply deficiency will continue for an extended period of time, which has encouraged the relatively new practice of importing high volumes of PP. The first waves of imports were dealt with nervously and sold off quickly with minimal margins, but as more material arrived, and the quality proved excellent, prices slowly inched their way up to domestic levels. The imports are earning their place in the market; the PlasticsExchange even reports getting specific requests like, “Hey, can you get me more of that 45 melt Random Clarified from Korea?”

Read the full Market Update on the PlasticsExchange website.