Weekly resin report: Tight PE market won’t last

April rocked, but May is starting out mellow in the resin markets, which is typical for the start of a new month, reports the PlasticsExchange (Chicago) in its Market Update for the week of May 2. Although resin offers and requests played to a lighter groove, the PlasticsExchange still concluded an average number of transactions. Spot polyethylene (PE) prices were steady across the board, while polypropylene (PP) slid another cent. PE export interest from Latin American and Asian regions has waned, while the arbitrage to Europe is still open for now.

The spot PE market saw reduced activity as May began, and overall pricing was flat this past week. Fresh railcar offers were limited, as was demand, with the exception of buyers needing spot loads to fill immediate supply gaps. Uncommitted inventories among the reseller segment have thinned. Although PE prices are not exorbitant, prices have risen quickly and seem a bit frothy at this level. Most traders have been liquidating material on this upswing, while generally opting for new transactions as back-to-back, according to the PlasticsExchange. 

PE contracts quickly jumped $0.09/lb during March/April, supported by (mostly planned) cracker and reactor outages. Without a new price increase on the table for May, producers are just looking to roll contracts at these elevated levels, which might not be too hotly contested. A price decrease immediately following an increase can pose a problem for processors who would be challenged to pass the last increase downstream to their customers of finished goods. 

The desire for a future decrease is still in mind. Resin market participants are anticipating increased material availability ahead, as several reactor maintenance projects are currently in completion stage. After consistent prime production has returned, PE prices could be heading back south through its cycle, note PlasticsExchange analysts. In the meantime, the market is still tight and certain grades like LDPE Clarity for film and higher alpha olefin LLDPE grades are outright tough to source. 

Spot PP trading has improved: The flow of offers is better and prices continue to ease. After five quarters of sparse supplies, generic prime railcars are back in the secondary market, competing with imported resins. The PP market has really turned—rather than chasing spot loads and cars, the PlasticsExchange is looking, again, to liquidate surplus supplies. While the market is far from swimming in resin, there is a sufficient smattering of most HoPP and CoPP grades spread around the country. 

While PGP monomer contracts fell as much as $0.465/lb from its October 2014 peak of $0.765/lb, PP producers leveraged the resin supply/demand imbalance to significantly expand their margins. They accomplished this by lowering resin prices much less than their cost savings. In April, the bubble finally burst (or at least sprung a leak) as the first $0.03 to 0.05/lb margin decrease was implemented. 

There should be very little, if any, change in May PGP contracts; April had settled at $0.325/lb. However, processors are looking for additional relief as they seek another net decrease in PP contract prices this month. Falling North American PP prices have taken a chunk out of the import incentive—in the months ahead, that could become very apparent in terms of supply gaps. 

Read the full Market Update on the PlasticsExchange website.