Weekly resin report: Sharp drop in polypropylene prices

After a slow first half of the month, the spot resin markets really woke up the week of May 16! The PlasticsExchange (Chicago) reports that its trading desk was super busy, and that it completed significantly more transactions than the previous two weeks combined. Polyethylene (PE) availability began to improve and prices were mixed. Demand was better, too, as many processors had held off buying and simply needed material. Polypropylene (PP) supplies were considered heavy and prices fell sharply.

Spot PE trading was very active. After a two-week lull, both buyers and sellers finally came to play, as supply began to flow faster and processors were ready to pull the trigger and place orders, reports the PlasticsExchange in its Market Update. PE contracts are rolling flat in May, holding on to the $0.09/lb gain garnered in March and April. The market has been supported by restricted ethylene monomer and PE production; about 10% of capacity for each has been offline for maintenance.

All film grades (HD, LD and LL) remained fairly snug, but there are signs that availability is improving. There was however, a force majeure issued for LLDPE from two relatively small plants, which contributed to this week’s one-cent uptick in LLDPE. HDPE managed to hold steady, but there is a negative undertone as new capacity in Mexico threatens to displace some of the country’s traditional high-volume demand for exported U.S. material. As the plant moves past startup phase and into full prime production, it will create the need for alternative outlets for surplus North American HDPE resins.

It is widely anticipated that PE prices will be marked lower in June, so the reseller market has been shedding inventory and processors have been limiting large orders, according to the PlasticsExchange. However, resin reactors are still down: The market is not awash in resin and producers have plenty of room to restock. So, while price relief may very well lie ahead, it is far from a done deal.

Spot PP trading was much improved; supplies were abundant and prices kept falling. The PP market dropped a large $0.03/lb last week; the adjustment in generic prime pricing worked toward shrinking the wide discount that off grade had been developing. The lower offerings have stirred demand, as processors rightfully recognized the value of PP at these levels.

The supply-and-demand dynamics in the PP market have made a 180 degree turn from the five quarters ending March 2016. Material is now plentiful, including most HoPP and CoPP grades, in bulk railcars and packaged loads warehoused around the country. At the same time that resin imports came to satisfy the shortfall in domestic supply, competitively priced finished products also came to impact processors’ end-user orders, sapping domestic resin demand.

Producers have responded to this massive inflow of competitively priced international PP resin by lowering their domestic prices. The first $0.05/lb decrease was implemented in April and another $0.05/lb decrease appears to be coming in June. This not only protects orders in the local market, but it also reduces the import arbitrage, thus lowering the incentive for resellers to bring in more material. While the market is currently bearish and falling, we anticipate that another supply gap will arise in the future. It is hard to pick a bottom, so we can simply suggest that there are very compelling opportunities currently available in the market.

Read the full Market Update on the PlasticsExchange website.