Spot resin prices soared last week, as fresh railcar offers dwindled and force majeure declarations multiplied. Some buyers scoffed at the rapidly rising prices, but many bellied up to the bar to grab what they could, said the PlasticsExchange, which reported a “hectic pace” in trading.
Despite the rising prices, high volumes continued to transact, mostly secured from resellers’ inventories, writes the PlasticsExchange in its Market Update. Buyers faced insufficient resin allocations because of a series of force majeure declarations in the wake of Hurricane Laura. Although there was limited damage to Texas and Louisiana petrochemical complexes, the area’s electrical grid suffered, causing widespread power outages and delayed restarts to affected facilities, particularly in Lake Charles, LA, home to major polyethylene (PE) producing plants belonging to Sasol and Westlake Chemical and polypropylene (PP) production owned by LyondellBasell. The disruption could go on for many more weeks, and will further restrict resin availability in an already tightly supplied market.
In addition, the region’s rail system has been compromised, adding to frustrating logistics delays and complicating empty railcar returns to plants. Consequently, the PlasticsExchange expects September price increases to take hold, including $0.05/lb for PE and $0.03/lb for PP plus the change in PGP monomer costs. Even with the higher prices attached, resin could still be difficult to source. A silver lining for domestic processors, however, is an easing of export demand, as Houston prices turn uncompetitive in many global regions.
PE resin prices jump as much as $0.04/lb
The Labor Day Holiday weekend typically heralds the end of summer vacations and a slight lull in transactions, but not this year. In addition to the disruption caused by Hurricane Laura, few fresh domestic railcars rolled in — none of them prime — and the export market was equally starved of resin to start the month, sending overall PE prices jumping by as much as $0.04/lb this past week alone. Resellers did provide good liquidity to the spot market from their warehoused inventory, but they found it difficult to price, as replacement resin was scarce and they had new costs to consider. These market conditions support the $0.05/lb contract price increase on the table for September; if implemented, which seems likely, it would total $0.19/lb in just a four-month period. Export sales should trail off, as rising prices will discourage demand from abroad. Aside from contracted international sales commitments, PE producers would also be well served price-wise shifting discretionary resin to the domestic market to help satisfy demand, recommends the PlasticsExchange.
The spot PP market saw fewer deals completed than prior weeks, but it was because of a lack of supply, not demand. The PlasticsExchange reported very high processor and reseller activity through both its online platform and trading desk. “Gulf coast PP production and logistics delays caused by Hurricane Laura reverberated through traditional distribution channels and customers came out of the woodwork searching for resin,” reported the resin clearinghouse. For some, availability reigned king and it was only deemed a bonus if the resin was also reasonably priced. High-flow co- and homo-polymer PP resins were most sought and prime was generally preferred, but off grade was also sufficient based on availability.
Spot PP prices stepped another three cents higher by Friday, marking 11 cents in gains in just 30 days. As of Friday’s close and since the beginning of June, spot PP and spot PGP levels are up $0.16/lb and $0.115/lb, respectively. This further strengthens producers’ margin-expansion efforts, which are currently three cents for September on top of any cost push increases. In this type of market, it is a heavy burden for producers to have PP contracts tied so closely to monomer movements, according to the PlasticsExchange. PGP actually lost ground last week, since offline PP plants were unable to process the available monomer. Domestic PP supplies should remain incredibly tight and spot prices will likely rise further. Export offers are starting to develop from other international regions hoping to score sales into the US market.
Read the full Market Update on the PlasticsExchange website.