Weekly resin report: Producers nominate $0.03 to 0.05/lb increase for polypropylene in August

The spot resin market remained active during the second week of July. Overall deal flows were robust, reports the PlasticsExchange (Chicago) in its Market Update, and completed volumes were above average and strongly slanted in favor of polyethylene (PE) over polypropylene (PP).

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Most PE grades rose at least a penny; additional strength was seen in PE injection grades. Aggressive buying the previous few weeks, has led to a softening in demand for PP—HoPP prices slid a half-cent while still tightly supplied CoPP resins held steady. The export market was mixed: Sales remained sluggish to the Indian and Chinese regions, but were better for Mexico, no doubt aided by the strengthening value of the peso. There is no PE increase on the table until August. July PP contracts will see little change. 

Spot PE trading was solid with done deals spread out along the full slate of commodity grades, reports the PlasticsExchange. HDPE injection supply remains snug, especially for high melt flow materials; LLDPE and LDPE for injection have also tightened. Although there was a steady stream of other PE offers, asking prices were generally raised higher as producers seek to eliminate the current spot discount while eyeing their $0.03/lb increase nominated for August. Even as the market firms, more than just a shadow of doubt looms over the increase, as reactors continue to run above 95% capacity and the most actively transacted PE resins—HDPE for blowmolding as well as LLDPE, LDPE and HMWPE for film—are all readily available. 

Upstream PE inventories built for the fourth straight month, bulging nearly 600 million pounds during this period to the highest level in 16 months. With the second half of 2017 now well underway, processors are keen to note that the three additional resin facilities slated to come online later this year should keep the market amply supplied and, barring further delays or general operating disruptions, weigh on prices. However, with many billions invested by the petro-chemical producers, sales for these forthcoming resins have not gone unplanned. PlasticsExchange analysts expect periods of heightened volatility ahead, especially when the plants are newly running and making prime resin. However, remember that supply and demand will always find a balance, at a price, whatever level that might be, writes the PlasticsExchange in its weekly update. When PE producers do lose pricing power, they seem to regain it fairly quickly, though it might be from a lower level. 

After two months of good demand, the PP market has begun to slow down. Processors had already made great strides toward rebuilding inventories, as second quarter price relief came through, and with the monomer recovery rally exhausting, fears of resin prices sprinting higher seem to have been allayed. Still, producers have shifted their thoughts from simply passing through monomer movement, hoping instead to leverage the tightening supply/demand dynamics to expand margins. The first of what can become a series of margin enhancing increases, ranging from $0.03 to 0.05/lb, has already been nominated for August. Perhaps the timing is right, muses the PlasticsExchange. 

Even though producers ran their PP reactors above 93% in May and June, increased resin sales, both domestic and export, outstripped production and contributed to a large draw of nearly 200 million pounds from producers’ collective inventories during the second quarter. They entered July with barely 1.4 billion lb on hand, the lowest since January 2013. On the flip side, total PP resin sales in June exceeded 1.6 billion lb for the first time since October 2007.

Do not be lulled by the small $0.005/lb increase in July PGP contracts—unlike PE, there is no new PP capacity coming. The PlasticsExchange reports that it is maintaining “at least a modest bullish outlook,” which is still dependent on monomer prices maintaining at least their current mid $0.30/lb level.

Read the full Market Update on the PlasticsExchange website.

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