Last week was, perhaps, the busiest in the spot resin market that the PlasticsExchange has ever experienced, reports the resin clearinghouse in its Market Update. High volumes of both polyethylene (PE) and polypropylene (PP) changed hands for prompt shipment as well as forward sales for delivery through April and May. A new wave of larger processors came to tap the spot market to supplement insufficient supplies allocated by resin producers, while others, previously repelled by sticker shock, came back to buy resin, as needed, according to the PlasticsExchange.
PE prices pushed another cent higher, while PP off-grade prices softened a bit amid better availability. Prime PP prices, however, snapped back up $0.04/lb after easing a tad during the first half of March. They ended the week just a penny below the peak levels seen during this massive rally. The market seemed to pause for a moment and some participants almost panicked, but after a day or so, with little Prime resin to be found, spot demand consistently re-appeared.
As more resin reactors return online, the renewed production is helping producers fill a larger percentage of their prime contracted orders rather than digging deeper into their resin stocks, which have already been largely depleted, writes the PlasticsExchange. Most producers still remain under force majeure, however, as they backfill orders and strive to rebuild inventories. As contracts absorb the vast majority of prime production, spot railcar availability has mostly been off grade. Resin priced at a healthy discount has been snatched up quickly. Some buyers seem to be wishfully talking the market down and negotiating hard, but then ultimately miss out on resin that was once available, and is now gone. Processors that require prime resin sometimes shop a bit, but then return to pay up, as needed. Prime orders have been filled through resellers’ inventories and from meaningful volumes of imported resin, mostly PP, which has been reaching the shores to help fill the gap. Some particular grades of PE, such as blow molding, have also been sailing toward the United States.
Spot PGP prices peaked around $1.05/lb in the wake of the mid-February storm and then eased as refineries and PDH units recovered quickly to make monomer faster than resin reactors could return to consume the feedstock. February PGP contracts then settled up $0.28/lb at $0.885/lb and spot continued to slide. March PGP contracts appear to be settling around $0.70/lb, taking PGP-correlated PP contracts down with them. This is partially offset by the successful $0.06/lb March margin increase, and then only for allocated volumes in the vicinity of 50%, reports the PlasticsExchange. PP contracts have gained some $0.23/lb of margin-enhancing increases during this bull run and have another $0.06/lb on the table for April.
Many market participants initially saw weakening PGP monomer costs as a sign that the entire PP market would collapse in epic fashion. The PlasticsExchange has held to its belief that it would take longer to get the complex petrochemical supply fully operational, especially to the point that upstream resin inventories could be rebuilt. Much of the COVID-induced medical (PP) and stronger online delivered consumer packaging (PE) demand is inelastic, according to the PlasticsExchange, which predicted that the supply/demand dynamic for both PE and PP would remain bullish for longer than most expected. Even as the mend has been underway, the supply shortage has persisted and sustained a bifurcated market between cheaper contracts and pricier spot Prime resins.
PE prices appear to have yet more upside ahead. The $0.07/lb March PE increase was easily implemented, bringing the 2021 total to $0.19/lb with as much as $0.09/lb on the table for April, writes the PlasticsExchange. At this point, it seems likely that at least some, if not all, of it can also take hold. Since the market bottomed in the second quarter of 2020, PE contracts have risen $0.43/lb. Spot PE prices have advanced well beyond the contract increases and have led the way since the mid-February storm. It seems that this unique environment could set up for a more gentle softening of prices rather than a fiery crash off a cliff. This past week’s activity and demand surge confirmed that this market is not out of the woods yet, notes the PlasticsExchange.
Read the full Market Update on the PlasticsExchange website.