Weekly Resin Report: Producers Reduce Output to Combat Over-Supply, Sliding Prices

Spot resin trading was mixed last week. Polyethylene (PE) business improved but was offset by slower polypropylene (PP) sales. Overall spot prices ended mostly steady, though there was deep producer discounting along the way to help improve month-end sales. It remains to be seen if one-off deal levels will return in May, reports the PlasticsExchange in its Market Update.

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Average PE contracts saw a $0.04/lb decrease in April, while most PP contracts declined two cents. In an effort to combat over-supply, resin producers have begun to reduce production by either throttling back reactor rates or idling plants. Resellers continue to shed their inventoried stocks while also seeking back-to-back orders. Though recognizing the current advantageous price level, most believe there is still plenty of time to buy and replenish inventories. Houston prices were soft as sellers chased limited demand amid the pandemic-led slowdown and cost-based shifting of supply channels. Contributing to general market anxiety and economic uncertainty, growing geopolitical tension between the United States and China concerning COVID-19 fallout and blame has caused some resin buyers in the Far East to hit the pause button, fearing possible retaliatory tariffs.

The spot PE market ended April and began May with surprisingly good activity amid a difficult economic environment. A heavy flow of railcar offers materialized, as producers sought sales for their excess output, domestic or export, given reduced demand from many of their normal processing customers. The PlasticsExchange trading desk reports closing a high percentage of opportunities presented, bringing completed volumes above the short-term average and closer to its normal market figures. Processors have been shrewd, only ordering small quantities as they wait for lower prices ahead; in most cases, they have been very aggressive with low-priced bids.

Most grades held steady this past week, however, supported by news that Dow will idle three PE plants for at least one month to help balance against lower demand (and diminishing storage space). The PlasticsExchange expects other producers to follow suit to a certain extent, which may help to curb the price slide. A $0.04/lb contract price decrease seems to be solid for April PE contracts, and the battle for May begins with processors calling for another $0.03 to 0.04/lb decrease. The export market remained busy, though prices have fallen sharply to compete with new low crude oil–based monomer costs, which feed international resin producers. The global PE market is still trying to find a bottom.

PP trading slowed last week: Supply was ample, but buyers were conservative, and spot prices ended flat with a weak undertone. Of the transactions completed, truckloads outsold railcars as processors continue to buy in reduced volumes, said the PlasticsExchange. April PP contracts will mostly settle down $0.02/lb with potential variance based on the index/metric, as producers have tried to implement a small margin increase.

Homo-polymer PP outpaced co-polymer PP sales, and prime was favored over wide spec, as the contract decrease has helped narrow the spread. Upstream resin inventories jumped 40 million pounds to begin April, but remain very low historically after shedding 355 million pounds over the previous five months. The market awaits a normalization of demand, which could begin to develop as shelter-in-place orders begin to ease. Still, PP prices seem poised to slide further in May, as spot monomer levels already point to a potential cost-based price decrease.

Read the full Market Update on the PlasticsExchange website.

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