Weekly resin update: Processors irked by rising PP prices, even as feedstock costs plunge

It was a difficult month for putting together transactions, as pricing was very sensitive, reports the PlasticsExchange in its market update for the week of Jan. 25: "We conscientiously helped suppliers limit their losses as they sold off old inventory, while still serving our faithful processors with deeply discounted resin." Polyethylene (PE) prices have fluctuated to keep export outlets open, while optimizing producer netback. There is a log-jam again—packaging warehouses are full of material awaiting shipment.

A considerable amount of ethylene changed hands, but with very little price movement. The market remains well supplied, as the vast majority of Gulf crackers are running at or near capacity. Ethylene is currently around $0.18/lb, which is down more than 75% since the last major peak ($0.765/lb) in September 2014. Future ethylene prices are also targeted near current levels: A small premium is provided over the next few months to account for cracker turnarounds, and then prices will slide a cumulative penny or so through the balance of 2016.

Spot PE trading was busy—supply was high, and although there was pricing gyration among grades, they averaged each other out to steady. HDPE resins have all been abundant; blowmolding prices cratered the most, but might have found at least an interim bottom. LLDPE butene has been the weakest of the film grades; higher quality resins like hexene, octene and metallocene, while amply available, have developed sizable premiums. LDPE resins have remained fairly snug through it all, writes the PlasticsExchange. High clarity has been holding its own, even gaining back a penny this week, and fractional melt is still outright difficult to source. PE contracts finally broke their three-month steady streak, declining $0.03/lb in January. Some producers are again positioning for a price increase in February, but if another $0.02 to 0.03/lb came out of contracts instead, it would not be at all surprising, write PlasticsExchange analysts.

There was limited activity in the propylene market; just a few transactions were seen at modestly cheaper levels. PGP for January delivery last changed hands at $0.28/lb, down a half-cent. As the month drew to a close, January contracts finally settled down $0.005 to $0.315/lb. The decrease was within range, but perhaps it should have been a tad larger; maybe it will come in February.

Spot polypropylene (PP) trading was solid; off-grade prices were soft, while prime was firm. January PP contracts pressed $0.03/lb higher, and producers will no doubt seek the $0.03/lb balance in February. While underlying domestic demand remains good and producers still have pricing power, these high levels are finally feeling fairly frothy.

Processors, frustrated with rising PP prices in the face of falling energy and feedstock costs, have been out shopping for good spot opportunities and are actively exploring alternative sourcing options. U.S. PP prices are well above those in most other regions, so imported resin has been flowing in. Low PP prices in Asia have crimped scrap PP exports, leaving a growing supply of regrind and reprocessed resin available in the United States for less-critical applications.

The resin markets are clearly nervous, reeling in the aftermath of plunging energy and feedstock costs, and concerned about the economic health in China and the rest of the world. Some major oil-producing nations are struggling to cope with reduced revenue, unbalanced budgets and eroding currency values, notes the PlasticsExchange. However, lower energy and raw material costs can also be a boon for the manufacturing sector in North America and abroad, encouraging capital investment, which will ultimately aid demand growth.

Read the full Market Update on the PlasticsExchange website.