The frenzied spot trading activity seen during the first half of January has subsided, and completed volumes pulled back to just above average levels, reports the PlasticsExchange (Chicago) in its Market Update. After the initial surge to procure material early in the new year, demand has chilled, particularly for polyethylene (PE). The big chill no doubt was precipitated by rapidly rising prices, which came as a surprise to most, that continued to advance last week.
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On the other hand, polypropylene (PP) demand remained solid even as prices soared. Domestic resin supplies, including most grades of PE and PP, remained restrained; fresh offers were limited while exports continue to flow at a heavy pace. Exports have been supported by good international demand and a rising floor price, spurred by escalating energy and feedstock costs, according to the PlasticsExchange.
Freezing temperatures in the Gulf disrupted production at about a dozen petrochemical plants and, to a lesser extent, resin reactors, which even brought about one force majeure declaration. Logistics have also been affected as many Houston area warehouses closed for two days while freight rates rose even further. These additional complications lend support to producers’ price increase efforts. The PlasticsExchange expects PP contracts to jump $0.10/lb or more in January because of cost-push pressures, while rising spot PE levels are bringing the $0.04/lb February nomination mentioned in last week’s resin report closer to reality.
Spot PE trading lost some of the luster seen in the previous two weeks, when domestic processors were actively procuring material to balance off their light buying during the latter part of December. Indeed, most industry participants were expecting softer prices in the new year, so many were caught off guard when all of the major PE producers nominated a $0.04/lb increase for February. Relatively few fresh PE railcars have been offered, and de-stocking efforts have also left limited spot supplies of packaged resin available.
The market has reacted with strength: Both film and injection grades of LDPE and LLDPE added another penny this past week. HDPE had previously sprinted ahead and these resins only held steady. It seems that PE exports have kicked it up a notch, providing good alternative demand, which helps to keep the domestic market tightly supplied. With the $0.04/lb increase soon coming into play, conditions will remain tight in the near future.
Read the full Market Update on the PlasticsExchange website.