The spot resin markets continued to heat up as July drew to a close, reports the PlasticsExchange (Chicago) in its weekly Market Update. Transacted volumes were heavily weighted in favor of polyethylene (PE) over polypropylene (PP), and prices were mildly mixed. The market was certainly not flooded with PE resin, but in addition to fresh material, there were still a number of trader-owned railcars that required disposition prior to the end of the month. PP was abundant and spot prices slid again. In general, the resin export markets have chilled, no doubt at least psychologically impacted by the accelerated erosion in crude oil prices, which fell more than 5%.
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Spot PE trading was very busy: Active turnover brought July volumes up to healthy levels. The spot market has been starved of LDPE and LLDPE, both injection and film grades, so a moderate surge in last-minute availability was welcomed by processors in need of material. LDPE high-clarity for film is still absent from the secondary market, so those prices gained another penny and could continue to climb. Availability of HDPE for film and blowmolding has been ample, resulting in mostly steady prices with a slightly softer undertone, particularly in Houston.
Continued production issues with additional planned outages ahead have limited PE resin supplies and kept the marketplace relatively snug. Given these conditions, producers have successfully resisted several months of processors’ calls for a contract price decrease, specifically some relief from the $0.09/lb of price increases that were implemented over March and April. With another rollover inked in July, and tight supply/demand dynamics still at hand, we have been expecting to see a fresh price increase nomination to help drive the point home, writes the PlasticsExchange. Then, voilà, just as the month was ending on Friday, we received the first new letter for a $0.05/lb increase effective September 1.
It is, of course, way too early to chime in on the viability of the September increase, but other producers are expected at least to announce their support. At the moment, the market is firm, domestic demand is good and LDPE and LLDPE supplies are tight. While HDPE is clearly easier to obtain, PlasticsExchange analysts note that they haven’t seen a split increase in ages. On the other hand, if crude oil continues to fall, lowering the production cost for foreign PE, we could see Houston and export prices ease to remain competitive and keep the heavy flow of material moving offshore rather than backing up into the coveted domestic arena.
The spot PP market remained pressured by surplus material, with prices for both homo- and co-polymer slipping another cent. Resin buyers have displayed swift mood swings, becoming aggressive with purchases when it seems that supplies are drying up, and then quickly running back to the hills when another wave of resin comes cascading. Market participants do not want to miss the opportunity to stock up at these historically stellar prices, but heaven forbid that they procure material today and see a cheaper price tomorrow. While the opportunity continues to hang around, we eventually see the material overhang clearing.
Sharply lower PP prices have shut the door on the import arbitrage. While some import supply channels will remain open to enable future flow, as needed, traders have been bitten and will be much more cautious with speculative buys and volumes. Processor demand exceeded domestic supply in 2015, which helped trigger the extensive upstream margin enhancement in the first place. We can only imagine that this recent period of well-priced PP has spurred additional demand and some hibernating molds will likely be dusted off and used again, writes the PlasticsExchange in its weekly report.
PP producers were already proactive with their price decreases to shut down the imports. PGP monomer has now jumped above $0.33/lb, its highest level since July 2015, a full year ago. After a period of astounding margins, rivaling the heyday of PE, spot PP margins are now actually squeezed to the point where incremental production decisions become valid. Cheap material is still available, but the PlasticsExchange thinks that time is ticking.
Read the full Market Update on the PlasticsExchange website.