Spot resin prices ended the week of April 12 modestly mixed, further consolidating but at a lofty level, reports the PlasticsExchange in its Market Update. A moderate stream of off-grade railcars rolled in, but fresh prime material generally remained elusive in the spot market.
Most producers remain under force majeure with contract, still on allocation, absorbing prime production save for some inventory restocking and committed exports. Spot market liquidity has been aided by prime imported resins, with light volumes of most polyethylene (PE) and polypropylene (PP) commodity grades available in Houston for prompt shipment. Completed volumes at the PlasticsExchange were solid, just a tad off the previous week’s tally, and right in line with February’s elevated average, which was a record month . . . until March.
While this unprecedented rally has become a bit long in the tooth, and some buyers try to talk down the market, mostly citing discounted wide-spec offers, the fact remains that there is very little prime resin to be found. Indeed, most resin reactors are now back up and running, but some plants are still spitting out lots of rough off grade, indicating that prime production rates are far from optimal. Some conservative resellers and buyers had already liquidated or processed most of their resin inventories, thinking this market would unwind quickly. Despite their wishfully bearish mindset, when they tapped the spot market again, the situation had only marginally changed, writes the PlasticsExchange. While some of the froth had dissipated, easing prices a bit from the peak, there were few special deals to be found and the discounts have not been deep.
Higher PE resin prices may be ahead
PE resin producers have a firm grip on the market. Given the massive expenses related to production disruptions — they will end up costing the North American resin industry more than 10% of the year’s production — it is doubtful that producers will easily relinquish their pricing power. They have plenty of back orders to fill, depleted inventories to restock, and a robust export market to re-engage, albeit at lower sales prices, before they can flood the domestic market with surplus material and erode their $0.43/lb increases achieved since last June. In fact, before prices come off, there could be higher prices at hand, according to the PlasticsExchange. It seems very likely that producers will implement much, if not all, of their up to $0.09/lb April price increase. In addition, we are starting to see a new $0.05/lb increase issued for May PE contracts, which will help support the current initiative.
Incremental PP resin buyers paying a steep premium
Most PP producers remain under force majeure conditions, and Pinnacle just rejoined this club concerning their PP co-polymer and Random Clarified resins, due to ethylene supply issues. Most PP contract volumes are still on steep allocations, so those buyers that need spot material to supplement inadequate supplies, have been paying a steep premium for their incremental resin needs. Much of these extra supplies have been coming from imported resin, with some shipments still on the water, though new import deals have been greatly reduced since the end of March. The PlasticsExchange said that it did not expect to see a tsunami of uncommitted resin reaching the shores to flood the PP market. “We believe the multi-layered pricing will continue with spot prime at the highest level, followed by spot off grade, then contract prime, and finally lower-end wide-spec resin, much of which is compounded or simply exported.”
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Overall, the PlasticsExchange predicts a mostly firm prime resin market with persistently tight supplies and sourcing challenges, slowly moving in the direction of a more balanced market environment, but still at elevated prices. The large gap between spot and contracts will shrink as additional increases are implemented and spot premiums erode as more normal resin production resumes, adds the resin clearinghouse in its Market Update. It stresses, however, that there is still a very deep supply deficit with little room for error — any additional production disruptions could tighten conditions significantly.
Read the full Market Update on the PlasticsExchange website.