The spot resin markets were extremely active the week of August 15, with transacted volumes exceeding the entire first half of the month, reports the PlasticsExchange (Chicago) in its Market Update. Multiple deals were made across each of the polyethylene (PE) and polypropylene (PP) commodity groups, with prices for most of those groups moving higher. Subtle increases are easily taken in the spot market, but sudden large jumps in the neighborhood of $0.03 to 0.05/lb create sticker shock. The surge in business was at least partly spurred by the accelerated rally in the energy and monomer markets. Higher energy and feedstock costs are seen as supportive for the September price increases nominated for both PE and PP.
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The flow of well-priced resin offers in spot PE trading was quickly matched to willing buyers. PE prices continued to rise across the board, with the largest gain of $0.02/lb seen for LDPE film. Domestic PE purchases in July were about 2% below the trailing 12-month average, and with the September $0.05/ lb price increase becoming increasingly likely, processors have gotten more aggressive with their buying during August.
Mother Nature has recently aided spot demand creating the need for last minute material, as floods in the Gulf and fires out West have backed up shipments and deliveries. We are entering the historically more intense period of hurricane season, and while the Gulf has been spared in recent years, it is a good reminder to keep ample resin stocks on hand. Resellers also have been actively buying material: It appears that, in addition to extra purchases ahead of the September increase, some are still caught a bit short of material, having counted on better availability that has not materialized, according to the PlasticsExchange.
Although industry supply figures suggest that spot resin should be more available, some upstream inventories have been held back to satisfy direct orders during current and upcoming maintenance periods. It is possible that if plant work is completed in a timely manner, material availability could improve in the later part of September, though added delays or further disruptions (crackers included) could keep the PE market tight. We are becoming ever more bullish on the upcoming September price increase, writes the PlasticsExchange.
Spot PP trading was strong and prices were mixed. CoPP advanced another half-cent, but HoPP, which had gotten slightly ahead of itself, slipped back the same amount. While processor demand continues to improve, as buyers take advantage of PP prices that remain in the $0.40/lb range, the market has yet to fully clear surplus supplies that are still hanging around. Nonetheless, August PGP monomer contracts settled up $0.035/lb to $0.37/lb, which will translate into a cost push price increase. Some buyers still tied directly to a monomer component will see a jump this month; others will wait until September for the $0.04/lb increase.
Although it took a while for PP producers to re-open their export channels, resin has recently been flowing off-shore in sizable volumes. July exports of 135 million pounds represented a significant 9% of total sales. While domestic purchases were off nearly 100 million pounds in July, the resin was essentially placed elsewhere rather than accumulating upstream. The PlasticsExchange does not view low short-term domestic purchase volumes as a lack of demand, but rather as material that needs to be bought in the future. It should be noted, however, that a still unknown but likely declining percentage of domestic PP demand was satisfied by imported resin in July.
PlasticsExchange analysts report that they are getting more bullish on PP pricing and are beginning to feel the supply/demand balance turning tighter: Rapidly escalating monomer costs, which have crimped PP margins, should temper operating rates. While trader supplies have been thinning and prices have edged higher, with some deft searches, there are still some great deals to be had.
Read the full Market Update on the PlasticsExchange website.