Weekly resin report: Softer PE prices ahead; another PP price cut coming this month

The resin markets continued to be very active the week of May 23, with the vast majority of May business conducted during the second half of the month, according to the PlasticsExchange (Chicago). Railcar availability for both polyethylene (PE) and polypropylene (PP) was slightly better this past week, as was demand, which facilitated a high volume of transactions. PE prices averaged out steady, with some grades moving either a half-cent higher or lower. After a sharp 3-cent plunge the previous week, PP consolidated and was flat.  

Spot PE trading was solid, with a well-balanced flow of both buy and sell orders creating a very liquid market in the key commodity grades. HDPE availability is leaning toward abundant; however, not all PE resin—notably, LDPE high clarity for film and LLDPE high flow for injection—is readily available in larger quantities. 

Despite the recovery in crude oil prices, which theoretically should support international PE markets, Asian and South American levels have slipped amid heavy supplies, hampering incremental U.S. export efforts. So, where is the resin? Well, based on restricted production capacity mostly due to reactor maintenance, writes the PlasticsExchange in its weekly Market Update, it was not surprising to see relatively snug supplies during this past month. According to the American Chemistry Council, only 3.23 billion lb of PE was produced in April, the lowest in 15 months. 

Considering the absence of another industry-wide PE price increase nomination, the buy side of the industry has been talking about a decrease in June, especially as capacity is expected to return online. However, PlasticsExchange analysts say they have yet to see an abundance of material hit the market that might support such a price break, and producers, who have plenty of room to absorb inventory, seem inclined to hold this level another month. Still, the market is maintaining a slightly bearish undertone and softer prices may be in the offing, at least in the spot market. 

The spot PP market has been hot: Better supplies and lower prices have aided transactional volumes, which continue to grow. There is a good assortment of availability, both domestic railcars and packaged imports, which, incidentally, are starting to thin. The sharp 3-cent decline in the previous week spurred demand; some processors required resin to run, but others were re-stocking inventories at these favorable prices. 

The phenomena of PP imports have more than balanced the previously short market, wrestling pricing power away from producers and into the hands of processors, according to PlasticsExchange analysts. Resin producers combated the open import arbitrage, which brought in a flood of PP material, by implementing two $0.05/lb price decreases, the first in April and the second forthcoming in June. 

The rapidly declining prices left some resellers with relatively high-cost imported material; some of them probably will be more cautious with their next round of import purchases. We are witnessing a classic supply/demand pricing cycle, and if it continues on cue, where lower prices restrict incremental supply, there should be another resin shortfall developing sometime during the summer, which would be accompanied by . . . a leg of higher prices. 

Read the full Market Update on the PlasticsExchange website.