Weekly Resin Report: Supply/Demand Imbalance Continues

Spot resin trading last week was marked by limited availability, higher prices, and initial buyer resistance shifting into acceptance. Sound familiar? That has been the pattern of late, as widespread damage and ongoing Louisiana power outages in the wake of Hurricane Laura kept some polyethylene (PE) and polypropylene (PP) producing plants from restarting. As time marches on, the production shortfall has become more evident and the supply/demand imbalance more pronounced, writes the PlasticsExchange in its Market Update.

Thankfully, Hurricane Sally missed the petrochemical producing region, but there have been so many storms this season that meteorologists have run out of primary names. Tropical storm Beta is next in line to threaten landfall in the Texas/Louisiana area: The winds are not forecast to reach hurricane strength, though the heavy rains could still cause problematic flooding.

The stormy summer season has helped producers secure a series of PE increases. If the September $0.05/lb holds, which appears likely, $0.19/lb will have been implemented in just four months. Another nickel is nominated for October. PP contracts have strung together a dime of cost-push increases along with a $0.03/lb margin-enhancer that should also stick this month. 

Spot PE activity bounced back from a surprisingly slower previous week to post solid volumes and stronger prices. PE prices rose another penny on average, with some grades up as much as two cents. Force majeure conditions remained, as production continued to be strained in the aftermath of Hurricane Laura. Few fresh railcar offers were made available; as pressure mounted, buyers turned to the spot market to fill in supply gaps. Resellers have generally been lightening their inventories by selling into this rally. As their stocks diminish, they are also challenged to either turn away customers or try to find spot material to transact on a back-to-back basis. Together these spot needs sent the PlasticsExchange trading desk searching for high volumes of resin. By the end of the week, the resin clearinghouse reported one of its best results on record.

High-density PE for film and blow molding resins remained very short, while injection grades were still somewhat available. Linear-low-density PE high-flow pellet and granular for injection and compounding were nearly non-existent. While LL film grades have also been restricted, they can still be found at relatively reasonable prices, according to the PlasticsExchange. Low-density PE remained super tight, but spot needs were seemingly less required during the past week or two. While high volumes of PE continue to be exported directly and/or staged internationally for contracted or program sales, incremental availability has been severly stunted and few pounds have flowed through traditional export channels. US prices have sprinted well past international levels, so it would take sharp discounts from current Houston pricing to meet the underlying demand. But the extra outlet is not needed now, anyway.

Spot PP resin prices post gains

The PP market remained very strong, as demand outstripped supply. Completed volumes at the PlasticsExchange again ran above average and spot prices advanced further. Processors continued to procure material needed to fill short-term supply gaps. With no fresh Prime railcars offered, resellers’ inventoried stocks provided good liquidity, but by the end of the week, availability diminished significantly. A healthy flow of high-quality off-grade railcars came to market and they were aggressively pursued, sending these spot prices above average Prime contract levels. Rougher wide spec and transitional cars were priced appropriately, well picked through, and some still sold to export markets. PP co-polymer, both No Break and Random Clarified, have been the tightest of the commodity resins, and while homo-polymer PP remains in short supply, the rising price has not kept pace. In a relatively rare move, co-polymer PP pricing was up $0.03/lb this past week, while homo-polymer PP only added $0.01/lb. PlasticsExchange analysts expect the $0.04/lb premium to relax back to a more typical $0.02/lb when supply/demand normalizes again.

While LBI’s Lake Charles, LA, PP plant remains offline and could stay so for another month, Braskem’s new PP plant has begun to operate. When Prime resins are consistently produced, that should help alleviate much of the supply/demand imbalance. There is also some capacity to return online from planned turnarounds. In the meantime, heavy PP exports have ceased and good volumes of imports are already sailing to the US coasts. The PlasticsExchange continues to have a bullish outlook for the market in the near term, but is starting to tread more cautiously as increased availability creeps closer.

Read the full Market Update on the PlasticsExchange website.