While the week of March 8 stayed within the realm of record activity as commodity resin markets remained very busy, mixed prices started to re-appear. After weeks of nearly no new producer offers, some fresh railcars began to roll in. The flow was sporadic, however, and consisted mostly of rougher off-grade, transitional materials. Other startup resins from a growing number of resin reactors also returned back online after losing almost a month of production, reports the PlasticsExchange in its Market Update.
Polypropylene (PP) demand waned a bit and prices eased a few cents away from the $1.50+/lb level, as some of the panic buying subsided amid thoughts of a monomer-led March contract decrease, albeit with sharply reduced resin volumes per allocation that averaged around 50%. Still, there was no lack of market excitement as more spot interest shifted to polyethylene (PE), where prices jumped an average of $0.04/lb. Most grades have surpassed the $1/lb level and the PE rally seems to have more upside ahead as the supply/demand imbalance starts to reach the type of tipping point and potentially parabolic price rise that PP experienced in February, according to the PlasticsExchange.
Most US resin producers remain in force majeure, and while resin is again being made, it is likely that more pellets are still being melted than being produced in the United States, so the supply hole has become deeper by the day. Even considering demand destruction at these ultra-lofty prices, large waves of imports, and a stark slowdown in exports, it will still take a long time for upstream PE and PP orders to be back-filled, and inventories throughout the chain rebuilt. The North American resin market remains grossly undersupplied, writes the PlasticsExchange, and a considerable part of the industry will still require spot material to supplement the supply shortfall.
Aggressive inelastic demand has buoyed spot resin prices to a very large premium over contracts, which are also rising rapidly. There is little doubt that PE producers will secure their March $0.07/lb contract increase, bringing the 2021 total to $0.26/lb and a huge $0.43/lb since the market found its COVID-19 bottom in the spring of 2020. During this same period, spot PE prices rallied an average of $0.56/lb, with a large variance by grade. High-density PE gained the most, especially blow molding, rising as much as $0.68/lb under the impact of the winter storm. Supplies of all grades are exceedingly tight and producers have also nominated as much as a $0.09/lb price increase for April.
Refineries, PDH units, and some steam crackers began to return back online and made propylene quicker than the PP reactors could restart to convert all the monomer to resin. With limited outlets for PGP, spot prices plummeted as low as $0.55/lb, before recovering a dime to end this past week at $0.65/lb. If spot PGP prices remain near this level through contract negotiations, March monomer contracts could settle about $0.20/lb lower. This cost savings would be passed through to resin buyers whose contracts are tied to monomer, partially offset by the $0.06/lb margin-enhancing increase nominated for March, for a net decrease on allocated volumes.
PP prices eased three more cents last week, bringing the total pullback from the interim high to a nickel. The PlasticsExchange believes it is too early to say whether the ultimate peak of the move is actually in. The vast majority of PP production was shut for the second half of February, reducing production by 800 million pounds from January production levels. Production is the lowest on record, triggering a massive drawdown of upstream resin stocks, also to record lows. Several PP reactors have begun making resin again this past week, but overall operating rates and production levels will again be severely stunted in March. When reactors eventually return to near nameplate capacity, it is very possible that monomer prices could surge again, according to the PlasticsExchange.
While resin production is definitely moving back in the right direction, given the extreme shortages, any new production hiccups could compound the situation further. That said, the PlasticsExchange is hopefully optimistic that relief is on the way, perhaps in the latter part of the second quarter.
Read the full Market Update on the PlasticsExchange website.