Although spot resin trading continued to improve, transactional volumes in June remained below the completed tallies of both April and May, reports the PlasticsExchange (Chicago) in its weekly Market Update. While polyethylene (PE) and polypropylene (PP) are experiencing very different market dynamics, they share slow demand in what has been a bearish period. The stunning UK vote to leave the European Union could generate an even deeper sense of caution, as resin market participants, and political/economic pundits in general, contemplate the impact.
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The spot PE market began to pick up, as resin availability increased and prices were lower across all commodity grades. Many processors withheld their large orders this month, limiting high-cost purchases while they tried to negotiate a price decrease for June contracts. Demand was a bit better the week of June 20, as some processors found their inventories drawn to uncomfortably low levels and simply required resin, notes the PlasticsExchange. Although higher volumes of PE transacted at lower prices this week, processors’ overall strategy did not play out perfectly.
Producers kept their material offerings light during the past several weeks and the relatively snug conditions helped secure a price rollover for June. PE contracts began the year with a $0.05/lb decline during January and February, quickly added $0.09/lb in March and April, and held flat in May and June, so contracts are up a net $0.04/lb for 2016. With this month’s negotiations out of the way, the PlasticsExchange reports that it expects a heavier flow of offers into the end of the month and quarter, which could finally lead to a decrease. Processors would like to see that $0.04/lb unwind in July. Crude prices are retreating from their recovery rally while Brexit is stirring anxiety, so considering what follows, PlasticsExchange analysts think the PE market is now poised for a decline.
PE supplies are improving. While some crackers and reactors still have persisting production issues, the vast majority of the turnaround projects have been completed and producers’ resin inventories have been growing. Exports are lagging: Producers have utilized the robust export market to balance off over-supply, but May’s exports were the lowest in 15 months, and while June is still in play, activity has been diminished. The strengthening of the U.S. dollar will not help. Moreover, the end of June and beginning of July is traditionally a slow period, as many processors take a vacation while reactors keep churning out more pellets. There should be some exciting month-end deals available.
Spot PP trading was solid, with a healthy flow of both supplier offers and processor requests. The heightened activity translated to slightly lower prices and good transactional volumes. June PP contracts were mostly down $0.05/lb, with some variation seen by producer and product. Those contracts still with a monomer component would be impacted by the slight $0.005/lb increase in PGP contracts. Others might see a lesser decrease for copolymer products, particularly specialty grades.
While the majority of the imported resins seem to have been sold, some imported PP copolymer resins are still lingering in warehouses around the country. However, the market is still reeling from the major surge in PP supplies; some demand had shifted away from consuming domestic production, which created a large surplus of generic prime railcars that required disposition. It is part of the process, and PP producers have been proactive to push the market cycle along to eventually regain pricing power.
Producers aggressively lowered contracts to shut down the import arbitrage, regain market share and stimulate processor demand at attractive price levels not seen since 2009. At the same time, there have been several significant purges of inventory into the export market to help eliminate the supply imbalance. The PP market has fallen sharply during the second quarter: Contracts lopped off a full dime and spot prices eroded even more. While the market could potentially still slip some, PlasticsExchange analysts think there is limited downside at this point and foresee higher prices ahead once the market bottoms out and begins to recover.
Read the full Market Update on the PlasticsExchange website.