Weekly resin report: Producers continue to eye price increase

Last week began slowly in the spot resin markets, but trading activity heated up as the week wore on. Ultimately a high volume of resin changed hands, fairly well split among the main commodity grades, writes the PlasticsExchange (Chicago) in its Market Update.

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Prices for some polyethylene (PE) materials firmed while others softened; in total, they evened out about flat. Polypropylene (PP) prices also averaged around steady, with off-grade a bit weaker and prime a tad stronger. Producers continue to pursue their August price increase initiatives: PE contracts are being invoiced up $0.03/lb, and while spot prime railcars are offered including the increase, they are price protected in case the increase does not hold. PP producers are also trying to raise contracts by $0.03 to 0.05/lb this month. 

PE trading was surprisingly good—completed volumes were high, particularly for film-grade resins. All decently priced HDPE for injection easily found a home, although the PlasticsExchange observed that there were clear limits to what customers were willing to pay. In general, resellers continue to focus on back-to-back transactions, trying to limit the level of uncommitted PE on hand. Producers continue to pursue their August $0.03/lb price increase; fundamentals, however, are seemingly stacked against it. 

For the fifth consecutive month, producers built inventories in July. During this streak, these collective upstream supplies have bulged more than 700 million lb to surpass 3.9 billion lb, a rare tally that has been reached just once in the past 11 years. Domestic demand in July was almost the exact average of the trailing 12 months. July PE exports eclipsed 700 million lb, which was just barely on the light side. Reactor rates again ran above 95%. Notwithstanding some resin plant turnarounds ahead, it still makes one wonder how the market could possibly absorb all the new capacity that could begin as soon as the next five to six weeks, notes the PlasticsExchange. 

PP trading improved, driven by better demand for both homo- and co-polymer. While off-grade resins generally remain accessible, spot supplies of readily available prime have been a little tighter. PP reactors ran at near full capacity in July, producing nearly 1.55 billion lb of resin, the most in about 10 years. Total PP demand was solid—more than 50 million lb above the 12-month average—but there was still an inventory build of more than 40 million lb. 

The PP market remains relatively tightly supplied, about 4% below the 12-month average. But after many months of disciplined production levels, why finally ratchet reactors up to full throttle with a margin-enhancing increase on the table, asks the PlasticsExchange. The timing could be questionable; market fundamentals have been slanted toward bullish but the super heavy production could impact market sentiment and stymie producer efforts to significantly expand margins in August. 

Read the full Market Update on the PlasticsExchange website.

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