The end of the week, month and quarter landed on solid ground, reports the PlasticsExchange (Chicago) in its Market Update. Despite challenging and sometimes slow periods, it was a good quarter, ultimately, as transacted volumes at the resins clearinghouse well exceeded year-ago levels. Although both polyethylene (PE) and polypropylene (PP) contracts extended their gains in March, processors have shown resistance and direct orders seem to have fallen short. These soaring North American resin prices have also shut down the high-volume export arbitrage, crimping incremental offshore sales. Consequently, material availability improved and spot resin prices have been pressured, with most commodity grades sliding as much as a penny this past week. 

Spot PE offers were well distributed by grade, which provided relatively good market liquidity without an over-abundance of material. Demand was lackluster, with the best buying seen for HDPE injection, still the tightest of the commodity PE resins, according to the PlasticsExchange. Spot PE prices have softened even as contracts advanced again in March, creating what appears to be a double top formation in the organization's benchmark HDPE blowmolding resin. While upstream supplies remain generally tight, and there is no need for a huge inventory purge, Houston levels have been slipping, as they more closely track toward an export clearing price. 

PE producers bucked a major consultant’s call for flat contracts in March, while also reaffirming their pricing leadership, by revising their March $0.06/lb contract increase to read $0.03/lb implemented as of March 1 and another $0.03/lb targeted for April contracts. PE contracts have risen a total of $0.08/lb during the first quarter. Although processors have voiced their frustrations with late month letters, there is little time to debate as April is already getting underway with another $0.03/lb on the table. 

PP trading was very good this past week, and in a somewhat rare occurrence, completed PP volumes at the PlasticsExchange out-stripped those for PE. Many PP contracts, which somehow again became tied to PGP monomer (at least during the rallies), settled up $0.04/lb in March, bringing the total Q1 cost-push price increases to $0.205/lb. However, before the March ink was even dry, spot monomer prices began to unravel, with $0.04/lb eroding this past week alone. Fearing that peak PP pricing is already in place, this break shook material loose from resin suppliers, who became more willing to deal at a discounted price, which aided spot trading. 

Although monomer costs are subsiding, and resin contracts should also begin to track lower in April, it is important to note that spot PP levels did not rise nearly as much as contracts did during this cycle rally. As such, spot PP has developed a steep discount to contracts, so even as spot PP could see some further softness there might be limited downside and we expect monomer-tied contracts to fall by a larger magnitude and the discount start to shrink.

Read the full Market Update on the PlasticsExchange website.