Weekly resin report: PP, PE prices set to rise in September

The spot resin markets continued to transact heavily the first week of August. The flow of offers was slower, as is typical, while demand for both polyethylene (PE) and polypropylene (PP) was very good amid strengthening sentiment, sending prices higher for most grades across both commodity resin groups. We expect contracts for both PE and PP to roll steady in August, reports the PlasticsExchange in its weekly Market Update, but spot prices could see further gains as processors procure extra material ahead of freshly issued September price increases.

All PE producers have now nominated a $0.05/lb price increase for September, leaning on tight supplies largely caused by ongoing production issues. PP producers, feeling the pressure from rising monomer costs, have also begun to issue price increase letters; the first was seen on Friday by the PlasticsExchange, seeking a $0.04/lb hike, also targeted for next month.

Spot PE trading remained active, and while the market was mostly higher, a slight shift in pricing has been noticed among grades. Spot availability for some previously scarce materials, such as LDPE and LLDPE for injection, have continued to improve, satisfying some pent up demand and easing premiums held to other resins such as LDPE and LLDPE film grades, which remain tight. Supply and demand for HDPE, including film, blow mold and injection grades, seem to be coming more into balance.

Despite a quick 20% decline in crude oil prices over the past five weeks, which has sapped some resin export interest, North American monomer markets have been strong and resin supply/demand dynamics are still tight; together they have been supportive to domestic PE pricing. While the market is indeed firm and the spot market is building some upward momentum, a successfully implemented increase is far from a foregone conclusion.

Incremental export demand, which could be a critical factor, has been sluggish as European markets flounder. The Latin American region is also being fed with competitive offers from Asia that could cap critical exports from Houston. Domestic demand has been healthy, but processors, while already cautiously hedging with added inventory against the possibility of the increase, will likely show fierce resistance when September contract negotiations come to a head five to six weeks from now.

PP trading intensified, demand has continued to grow and spot prices earned a rare $0.01/lb gain this past week. Although spot resin availability has remained plentiful, this bearish leg seems to be running out of steam. PlasticsExchange analysts note that they have seen processors become a little more aggressive with purchases: As material sells and inventories thin out, fresh asking prices are coming in higher.

The PP market is still reeling from sharp losses sustained during its extended six-month downward trend. However, this cycle seems to be transitioning from a trough low into the early recovery phase. Unless PP producers flood the market again, which the PlasticsExchange does not anticipate, the bottom of this move should already be in place.

The recent and rapid run-up in spot PGP monomer costs into the mid-$0.30s/lb should instill an extra level of discipline at the producer level. With PP margins now eroded to minimal levels, it would simply challenge good sense to chase limited monomer supplies and drive PGP even higher in order to maintain high operating rates in an environment that has been over-supplied of resin.

The current cost-push pressure, if maintained, will certainly lend solid support to the pending price increase, but September 1 is still several weeks away. In the meantime, there is plenty of surplus material floating around, so the opportunity remains for fleet-footed buyers to secure well-priced PP. The rise in monomer and price increase announcements may very well be the catalyst to turn this market from bear to bull.

Read the full Market Update on the PlasticsExchange website.