Spot prices for all polyethylene (PE) and polypropylene (PP) grades eased another cent the first week of August, though they remain at historically high levels, reports the PlasticsExchange in its Market Update.
Processor demand was tepid while offerings of various — but not all — grades have increased and are starting to accumulate. Resin production has returned to robust levels and collective producer PE inventories have reached an all-time high, according to the PlasticsExchange, while PP inventories have exceeded pre-winter-storm levels and now stand at the highest in more than a year. Nevertheless, with some planned turnarounds ahead and the potential for production disruptions during the gulf hurricane season, the vast majority of PE and PP producers are still operating under force majeure conditions or have allocations in place, even though many shipments are running at 100% of forecasts.
After hotly contested negotiations that ran into August, major industry indices confirmed that July PE contracts increased by $0.05/lb. There is another $0.03 to 0.05/lb on the table for August. PP contracts did not absorb the $0.05/lb margin increase, although they did add $0.02/lb commensurate with the rise in PGP contracts. Spot PGP levels have soared in August, and this month’s contracts are poised to record a double-digit increase, writes the PlasticsExchange. PP contracts are sure to follow.
PE availability has improved, particularly for all low-density (LD), linear-low-density (LLD), and high-density (HD) film grades, while spot supplies for each sector’s injection and specialty materials remain fairly scarce. HD blow mold has improved somewhat, but remains short. PE exports have languished: They have been shipping at sharply reduced volumes, the lowest in more than a year, which has contributed to bulging upstream resin inventories. In the meantime, producers have reported stellar financial results and seem comfortable holding back more material rather than tapping traditional export broker channels. This would require selling resin at levels considerably lower than domestic prices, and that visibility would likely interfere with the huge local premiums. Nature in the gulf could again come to disrupt production like it did a year ago and again in mid-February, but otherwise, PlasticsExchange analysts feel that the PE rally has grown a bit long in the tooth. It is a tricky time in the market that requires caution, with possible interruptions ahead. Processors ought to have ample supplies on hand, but if production continues relatively smoothly and record export levels do not emerge, the market could be setting up for a perhaps sizable fourth-quarter decline, according to the resin clearinghouse.
The PP market is caught between the return of largely sufficient supplies and runaway monomer prices, which are back within striking distance of the all-time high reached in the direct aftermath of the mid-February storm. US PP shortages helped producers implement a long series of margin increases over the past year. With PGP spiking higher, August resin contracts will endure a large cost-push increase to shatter record levels, just as availability was improving and off-grade levels were slipping. Even at these high prices, overall PP demand has remained very good, as some sectors, including medical and PPE, remain hot, easily absorbing increase after increase. However, others like automotive and new construction have been affected by tangential supply chain disruptions. Large volumes of PP imports helped close the gap between supply and demand. While delayed shipments are still streaming in, untenable ocean freight and port constraints have crimped new imports for more than a month.
There has been another minor run in new imports, as monomer costs help sustain high PP prices, but the overall lack of fresh imports will help offset growing domestic supplies and could keep the rally intact a bit longer, according to the PlasticsExchange. Still, since there is no viable large volume export market for US PP, when supplies eventually recover enough to tip the scale negatively, producers could find it difficult to maintain these extraordinary margins and resin prices.
Sourcing spot material is still not simple and some grades are outright tight. The PlasticsExchange does not expect to see prices tumble in the immediate future, but it does report seeing a case for it building, “so early writings might be on the walls,” it notes in its Market Update. “We are, however, also well in the midst of unprecedented world events, and the massive amount of government/taxpayer-funded financial distributions and stock market and crypto wealth have spurred excellent consumer demand. It is still unknown how it will all play out, but, for sure, all of this will keep us on our toes,” writes the PlasticsExchange.
Read the full Market Update on the PlasticsExchange website.