Weekly Resin Report: The Calm Before the Storm

The spot resin markets stayed in the slow lane as the end of August approached, but with Hurricane Ida barreling through the gulf this weekend, the situation could quickly change, reports the PlasticsExchange in its Market Update. Prices for the vast majority of commodity-grade polyethylene (PE) and polypropylene (PP) materials continued to slowly slide, peeling off pennies of the previously large premiums held to contracts, which rose again this month. Overall resin supplies, including prompt availability for most PE and PP materials, continued to improve. Spot demand became lackluster, well off the pace seen during the first two quarters of the year. While some producers continued to operate under force majeure conditions, most contract buyers have been receiving the full allocation of their forecasted orders. Some processors who had over forecasted, thinking only 75% might be supplied, had extra resin to sell when producers shipped their complete orders. 

August PE contracts probably will settle flat after securing a $0.05/lb increase in July — high-density (HD) PE for blow molding and injection, which remained relatively tightly supplied, were reasonably justified, said the PlasticsExchange, while low-density (LD) PE and linear-low-density (LLD) PE film grades, which have become generally accessible, seemed to just come along for the ride.

PP contracts followed PGP monomer up $0.11/lb this month, but producers were unable to implement the $0.05/lb margin increase they sought. The $0.05/lb PE and PP increases will be rolled and attempted in September. Sky-high ocean freight from both Asia and the Middle East stymied significant volumes of fresh imports during August, though some PP imports arrived throughout the month from older orders finally trickling in after serious delays. PE imports mostly have been limited to blow molding grades; otherwise, fresh imports seem to have come to a halt, while port congestion and elevated logistics costs remained. PE exports are still flowing direct, but incremental high volume sales through traditional broker channels remain limited.

PE prices move lower, but stay close to record highs

PE prices moved lower on the week, while trading picked back up to a more normal pace as availability continued to improve. Although pricing was somewhat better for buyers, it is still close to record highs established earlier this year. 

Several transactions were completed in HD blow mold and LLD PE injection, which have been difficult to obtain. HD Pail & Crate grade railcars came available this week, while supplies across all LD, LL, and HD film grades continued to improve. Although production along the Gulf at the time of writing was at risk from Ida, panic buying did not ensue as forecasts shifted east away from the Texas production region, but still toward the heart of gas and petrochemical laden Louisiana. Meanwhile, August PE contracts appear headed toward a flat settlement, which comes just after a contentious July increase of $0.05/lb earlier this month. Average price initiatives of $0.05/lb had been nominated for August, and one producer issued a $0.07/lb increase for HDPE. PE contract prices have increased for eight consecutive months, driven by production disruptions and strong buyer demand. They have persistently rallied during the past year, rising some $0.65/lb along the way. PE producers will seek their August nickel again in September; if Hurricane Ida proves to be overly disruptive, an additional increase could come into play.

Sustained elevated PP resin prices

Spot PP saw average demand while prices peeled back a bit more as supply continued to improve, according to the PlasticsExchange. There were plenty of off-grade railcars that continued to pelt the spot market, and some generic prime also appeared, though the market is certainly not awash in resin. Prime truckloads for prompt availability were mostly supplied through imports already here and still on the way. Meanwhile, another producer ended force majeure on PP at its Texas facility. The company’s announcement follows other resin suppliers that have either lifted a force majeure or discontinued sales allocation. At least four PP suppliers remain under force majeure, implemented following winter storm Uri in February that severely affected the US petrochemical and polymer production and logistics supply chain. PP may be somewhat looser, but several factors are keeping it from truly opening up. Planned turnarounds in September and October, strong producer margins intact, and a lack of recent imports have helped sustain elevated PP prices. High monomer costs are also helping support PP prices. August PP contracts were up in lockstep with the $0.11/lb PGP contract increase. When PGP availability improves, PP prices should start to ease; based on conditions then, some of the production margins could also erode. US PP prices are well ahead of international levels. If and when maritime conditions and elevated ocean freight finally subside, imports likely will resume. 

Despite the buildup in resin stockpiles in recent months, suppliers have held on to material as a precautionary measure against potential supply chain disruptions, specifically the US hurricane season. And so, this weekend is exactly the scenario suppliers have been preparing for. Needless to say, the entire petrochemical and polymer market will be closely following Hurricane Ida’s impact on operations. Ida is the first major hurricane of 2021 to directly pose a threat to the US Gulf Coast refining and petrochemical infrastructure and is a year removed from Hurricane Laura in 2020, which was followed by hurricanes Delta and Zeta in October 2020, which together caused producers to shut operations. Ida hits exactly 16 years to the day from Katrina, bringing a stark reminder to the destructive natural forces that can disrupt lives and business.

The PlasticsExchange extends its best thoughts for the safety of all those in the storm’s path.

Read the full Market Update on the PlasticsExchange website.