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Weekly Resin Report: Rapidly Rising Monomer Costs Foretell Sharp Increase in PP Contracts

Combined with a potential margin-enhancing increase, May polypropylene (PP) contracts could rise by $0.20/lb.

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The spot resin markets were a tad slower last week, part of the ebb-and-flow cycle of the past couple of months, as demand fluctuates between cautious pauses and surges, reports the PlasticsExchange in its Market Update. The supply situation has not changed much, as most producers remain under force majeure conditions, with many providing limited contract volumes per allocations. 

Spot polyethylene (PE) and polypropylene (PP) prices were widely mixed by grade. Most materials have held their steep spot premiums, but some grades have become more available and are unable to hold peak price levels. Producer-direct PE exports continue to flow, but relatively few offers have been shown to the exporter community, as supplies remain snug and the vast majority of Prime resin is used to fill contract orders. The limited incremental export offers have generally been priced out of reach of international buyers. Logistics issues and soaring freight rates, both ocean and domestic trucking, have added to delivered resin costs.

Limited supplies hamper PE trading activity

PE trading was good, but not great, the week of May 10, according to the PlasticsExchange. Activity has generally been hampered by limited supplies that have not yet recovered from production issues that have plagued the North American plastics industry. While most plants have been back up and running, some reactors continue to wrestle with production problems, keeping spot supplies super snug. Most Prime resins were hard to source, though a decent flow of off-grade has continued. High-density (HD) PE for blow molding remains the shortest material — another round of eager buyers grabbed every pellet that appeared, causing prices to jump a solid $0.04/lb. Blow molding is the only PE grade where significant imports have helped close the supply shortfall, reports the resin clearinghouse.

High-molecular-weight for film has become a bit loose, as competitive offers from overseas have usurped many potential export orders. This resin chunked off a hefty $0.04/lb this past week. The rest of the commodity PE materials, including low-density (LD) PE Clarity, linear-low-density (LLD) PE Hexene, medium-density PE for rotomolding, HDPE high flow, LLDPE injection and granular, each added $0.01 to 0.02/lb. Producers should ink their $0.05 to 0.06/lb price increase for May contracts and some have another increase nominated for June, according to the PlasticsExchange. PE prices have disconnected from ethylene costs, which decreased $0.07/lb this past week and have dropped a huge 33% since May began.

PP market bucks softness and returns higher

The PP market has bucked its interim softness and returned higher, as supplies remain very tight and rapidly rising monomer costs foretell a sharp increase in May contracts. Prime railcars are still generally absent from the spot market, but the PlasticsExchange reported seeing a fairly steady flow of off-grade PP railcars, with a good range of quality from rough off-grade transitional resin all the way up to near Prime material. Homo-polymer was again more available than co-polymer. There was some consolidation in pricing as the lower end of the spectrum cleaned up and, in an ultra-rare occurrence, average HoPP prices slid a cent, while CoPP resins rose. 

A significant amount of PP imports have been reaching US shores, but most have been presold, though additional cargoes are making their way across the seas to help satisfy demand. Spot PGP has maintained its rally back to the mid-$0.70s/lb, and if prices continue to hold, May contracts could jump between $0.15 and 0.20/lb. An additional margin-enhancing increase is not out of the question, so there is a very good chance that May PP contracts will see an increase in the vicinity of $0.20/lb. 

The PlasticsExchange said that it is holding firm in its conviction that spot material will remain tight and it is fairly bullish on both PE and PP prices. The North American resin market has seen ongoing production disruptions, which have helped maintain the extraordinary supply/demand imbalance. While the gap has been closing over time, additional hiccups have come to challenge the return to normalcy. Moreover, the hurricane season, which officially begins in June, is forecast to be heavy and could again prove to be problematic.

Read the full Market Update on the PlasticsExchange website.

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