Weekly resin report: Supply/demand dynamics contribute to slide in spot PE, PP pricing

Growing supplies and lackluster demand have predictable effect

Despite a steady stream of interest from both resin buyers and sellers, transactions were soft last week, reports the PlasticsExchange (Chicago) in its Market Update. Polyethylene (PE) and polypropylene (PP) supplies continued to build and spot prices slid further. Processors were often seen probing the market and seeking reduced price levels, but they appeared more satisfied to confirm the downward trend than to actually procure material. 

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The spot PE market was pressured by growing supplies and lackluster demand. HDPE for injection and blowmolding lost a penny, as did LLDPE and LDPE film grades. Some lower volume commodity grades, such as high flow LDPE and LLDPE for injection, as well as material for rotomolding, remained a challenge to source, however, and those prices remained firm. 

Preliminary results from the American Chemistry Council indicate that in May, PE production bounced back to over 3.4 billion lb, 245 million more than in April. Total demand was relatively weak—domestic sales were 2.56 billion lb, 50 million below the 12-month average—and export sales were 677 million lbs, the lowest in 16 months. The slack demand could not absorb the increased production, which resulted in an upstream PE inventory build of 183 million lb, reports the PlasticsExchange. 

Processors mostly have been picking away with small orders, awaiting relief from the $0.09/lb of price increases that were implemented during March and April. While spot prices have been softer, particularly for off-grade, widespread discounting for generic prime railcars has been elusive. Some are hopeful that a $0.04 to 0.05/lb decrease can still be negotiated for June contracts, but others are conceding that July might be  more realistic time frame. Exports remain sluggish, resin production has been increasing and upstream inventories are growing. However, processor PE procurement has been off for two months in a row, so they need to buy. Let’s see who blinks first, writes the PlasticsExchange. 

PP trading was about average, with supplies continuing to increase and prices falling further. There is good availability of both domestic and imported PP warehoused around the country. Spot HoPP, which fell $0.02/lb, is more abundant than CoPP, which only shed a cent. While previously imported resin supplies are depleting, this alternative competitively priced material has left some domestic resin without buyers, giving new life to the generic prime railcar market, which had been in deep hibernation. 

According to initial reports, domestic PP production rates increased for the third straight month to over 97% capacity, yielding just more than 1.5 billion lb in May. This level has not been eclipsed since March 2015, according to PlasticsExchange analysts.

Despite strong sales, all of the domestic PP production could not be absorbed, so 36 million lb were added to producers’ collective inventories. These upstream supplies have grown 140 million lb over the past three months; June began with 1.65 billion lb on hand, the most since May 2012. The current supply/demand imbalance has weighed on PP contract pricing, generating two recent $0.05/lb decreases, the first in May and the second currently implemented on June contracts.

Read the full Market Update on the PlasticsExchange website.

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