The flow of fresh offers in the spot resin markets remained inconsistent and prices were mixed, reports the PlasticsExchange (Chicago) in its Market Update for the week of March 13. Transacted volumes were better than average, though heavily skewed toward polyethylene (PE) over polypropylene (PP). After securing a $0.05/lb increase in February, PE producers are seeking to raise March contracts by as much as $0.06/lb. PP contracts have already jumped $0.165/lb during this young year, and producers are seeking to pass along their soaring monomer costs, which have continued to rise this month. Incremental exports are challenged by high prices and lack of availability; the PlasticsExchange notes that it is seeing a huge gap develop between high domestic PE and PP levels and workable export prices.
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Spot PE trading was solid. While the overall market was mostly priced lower, there was some variance among grades and even some strength seen. Processors with ample material on hand shied away from spot (railcar) offers that included $0.04 to 0.06/lb of the March price increase, as direct contracts are generally protected if the increase does not stick. Though still being negotiated, it would not be surprising to see at least a $0.03/lb increase take hold. Some view this as the potential peak pricing for this cycle. There was a run on HDPE for injection, which has been hit with production issues. It bucked the rest and gained at least a cent, with little reasonably priced material still to be found.
On the other hand, LDPE and LLDPE resins, which had been trading at a healthy premium to other grades, gave back $0.01 to 0.02/lb. While the typical base for offshore PE sales is still largely intact, the arbitrage for extra export orders has been closed based on price. However, the PE market is far from awash with resin, as producers have faced planned and unexpected outages, which have limited overall resin supplies, thus reducing the need to offset slacking domestic demand with a major export purge. This lull has allowed the railcar log-jams and packaging back-ups in the Houston area to substantially clear.
PP demand remained slack, which has capped spot levels even as contract prices continue to leap higher. Spot HoPP and CoPP prices actually eased another penny this week, reports the PlasticsExchange. Those processors locked into contracts or specific brands are feeling the brunt of the monomer rally, as another cost-push increase, which is starting to target near a nickel, will imminently be implemented in March. This will bring the 2017 PP contract gains to $0.20/lb plus. It is a very rare occurrence to see spot prices develop an ever-growing discount to rising contracts, writes the PlasticsExchange, adding that it is not referring to a few loads here and there. Many millions of pounds of prime and off-grade PP are packed and ready to go in various warehouses around the country.
While occasional softening of the PGP monomer market lends unsubstantiated relief hope to processors, deeper insight could actually reveal spot monomer sales that result from reduced reactor rates. While this temporarily weighs on monomer prices, it also tightens resin supplies. Indeed, the forward PGP market indicates lower feedstock costs ahead. However, supply/demand dynamics are tight and, given reduced production, will probably remain snug in the months ahead. As was seen throughout 2015, if and when monomer prices do subside, PP producers then will rebuild their margins as they lower resin prices less than the drop in their costs.
Read the full Market Update on the PlasticsExchange website.