The plastics market quietly closed the books on a truly crazy year, reports the PlasticsExchange in its Market Update.
It all started with such promise: Coming off a very negative 2019, characterized by greatly expanded production capacity and associated oversupply that led to major price erosion, the 2020 market began with an uptick. High-density polyethylene (HDPE) and linear-low-density (LLD) PE film resins started 2020 priced in the mid to high $0.30s per pound, and the rest of the PE and polypropylene (PP) commodity-grade resins ran along the $0.40s-per-pound range. Feedstock costs were well under control with ethylene at $0.16/lb and PGP hovering around $0.30/lb. WTI Crude Oil was priced just above $60/bbl.
As soon as the calendar turned to 2020, the spot market began to recover. In January, PE producers secured their first $0.04/lb price increase of the young year. PP prices also tacked on a few cents, though contracts followed monomer flat, writes the PlasticsExchange. Demand was excellent, as optimistic processors bought heavily to restock their coffers. However, the overall market began to sour in February, when hints of a pandemic began to circulate. Resin prices slipped a bit into March, and then COVID-19 really took over, shutting down economies and resin processors along the way. This was a huge demand destroyer, sending resin prices into a tailspin.
Q2 marked by dramatic losses.
The second quarter was filled with uncertainty — quarantine orders began and no one knew how bad it would get or how long it would last. With processors delaying deliveries, resin began to back up and prices came under severe pressure. The spot market whittled away all of the early-year gains and losses began to mount. NGLs, including ethane and propane, were the first to find a bottom in late March, having chunked off 50 to 60% from January levels. Ethylene lost half of its value by early April. As dramatic as these losses were, they paled in comparison with the collapse in WTI Crude Oil prices: By late April, they had cratered $100/bbl from January levels. With gasoline demand plummeting and manufacturing facilities shut, oil storage capacity quickly filled up and panicked sellers drove WTI oil prices to a low of negative $37/bbl. Yes, sellers paid buyers as much as $37/bbl to simply take the oil off their hands! This was absolutely unprecedented.
PE producers acquiesced to the downstream call for price relief and decreased April contracts by $0.04/lb, thereby unwinding the January increase. PP contracts followed monomer down over several months, sliding $0.07/lb by April. With resin demand stalled, resin producers slowed and even temporarily shuttered reactors. They did find excellent demand from the Asian region, China in particular, which was curiously quick to recover from the pandemic that was on the march globally. Spot resin prices had fallen much more than contract and large quantities of material changed hands in the $0.20s and low $0.30s per pound. Supply/demand dynamics soon balanced out, and the resin markets finally hit bottom in early May. Both PE and PP contracts managed steady that month; by June, PE producers implemented a fresh $0.04/lb price increase, and we were again back up $0.04/lb for the year.
International buyers scoop up well-priced resin.
Then came a series of unexpected resin outages while other reactors came offline for planned maintenance. With resin supplies tightening further, PE producers inked a nickel increase in July while PP contracts jumped back up $0.06/lb, now just down a cent for the year. Upstream inventories continued to draw down as international buyers scooped up well-priced resin deals, placing pricing power firmly back in the hands of producers. Exports remained robust as the US Gulf hurricane season kicked into high gear — a couple of massive storms wreaked havoc on the Louisiana resin-producing region, knocking out PE and PP production. And just like that, PE producers implemented additional $0.05/lb increases in both August and September, while PP contracts rose another $0.065/lb in the same period. By the end of the third quarter, PE contracts were up $0.19/lb for the year and PP was up a net $0.06/lb, reports the PlasticsExchange.
After three quarters of whipsaw action, processors expected some traditional discounting in the late fourth quarter. Domestic demand began to ease, as buyers tried to wait out peak pricing. While spot resin prices did dip a tad, international resin buyers kept up their robust demand, while fresh PE and PP resin production issues helped stoke renewed upward market momentum. Buyers were caught short of material while hoping for discounted supply that never came. To top it all off, the PE rally was not done for the year. Another $0.05/lb increase was implemented in December, bringing the year’s gains to a whopping $0.24/lb.
Downed PDH units and reduced refinery output hampered propylene production. Monomer supplies proved insufficient to satisfy demand; as such, monomer costs staged a sharp two-month rally, where PGP contracts jumped $0.16/lb in November and December. PP producers capitalized on tight supplies and implemented additional margin-enhancing increases averaging another $0.05/lb, rounding out the 2020 gain to an astounding $0.29/lb, writes the PlasticsExchange. Even with prices soaring through December, there was very little surplus resin to be found and 2020 ended with many processors scrambling for material. Some demand remained unsatisfied.
Although there are additional PE and PP price increases on the table for January, perhaps we will start to see better spot supplies when the 2021 resin market gets into full swing in the coming week or so, writes the PlasticsExchange.
Read the full Market Update on the PlasticsExchange website.