Spot resin trading activity improved during the first full week of October. Polyethylene (PE) prices fell 2-3 cents and polypropylene (PP) lost at least one nickel, triggering better demand and larger completed volumes, the PlasticsExchange reports in its market update.
While there were fewer heavily discounted offers than at the end of September, a wider range of qualities were available at lower prices, which seemed to leak a bit over the latter part of the week. . Some processors who typically tap the spot market for PE and PP supplies were happy with the cheaper materials and chose with purchase orders, but only as needed rather than really restocking. However, many other processors have remained on the sidelines, choosing to reduce the on-hand stocks built up over the summer as a physical hedge against potential hurricane-related disruptions.
Hurricanes Ida and Nicholas caused some production problems in late August and early September, but they were relatively mild, especially given the large collective producer stocks that have been increasing since March. While producers’ direct export programs continued to provide a solid basis for export sales, additional exports through traditional brokerage channels had been minimal during the summer. Meanwhile, resin reactor rates have remained robust, so as restocking became untenable, some materials had to be purged. These channels did not begin to be used at higher volumes until the end of September, as producers significantly reduced export offer prices to move a larger volume of material. PlasticsExchange believes this trend will continue.
PE growers have successfully implemented price increases of $ 0.41 to $ 0.43 / lb since the start of 2021. However, the last two attempts for an extra $ 0.05 / lb didn’t failed in August and September. A third attempt to boost nickel is in place for October, although current spot levels make it extremely doubtful that the increase will hold. While it is entirely possible that the October PE contracts will stabilize again, a drop in official prices could also be justified after such a long series of increases and given that discounted domestic shipments are now have become more common, according to PlasticsExchange.
PP contracts are up $ 0.57 / lb from January to August, which consists of $ 0.385 / lb for monomer and $ 0.185 / lb increase in net margin. PP contracts were down $ 0.03 / lb in September, in proportion to lower prices for PGP contracts. The last two attempts to improve margins have also fallen on deaf ears, and the retry in October looks very unlikely to succeed. In fact, given the drop in spot PGP monomer, PlasticsExchange is currently expecting a significant drop in October PP contracts to a single digit that could reach double digits. But the monomer still has a lot of time to move around before contracts are negotiated.
Analysts are seeing spot price discounts for premium, broad-spectrum generic PP resins that exceed spot monomer slippage. While some erosion of margins may also be justified, the main indices could ultimately be generous for producers and keep margin levels intact by relieving October PP contracts only based on falling PGP costs. . The PlasticsExchange notes that it was very bullish in the first seven months of the year, turned neutral in August, then bearish in September, long predicting a decline in Q4, which could be quite steep. “Indeed, we see the market going, as expected,” the PlasticsExchange wrote in its market update.
The prices of PE and PP are taking off from record levels; they are not in relative free fall, although there may be more downsides ahead. To counter this, there are concerns about the lack of electricity in China, which has already started to cut back on petrochemical and resin production at some factories. This could ease global supply issues while already pushing up Asian resin prices. Note, however, that Asian resin prices have been significantly lower than North American levels, and as these regional prices tend to close the gap, there is still some way to go before arbitrage to Asia takes place. really opens, according to PlasticsExchange.
North American PE producers continue to enjoy a substantial cost advantage over the majority of their international resin-producing counterparts and have the ability to become as competitive as necessary in international markets. However, it takes some time to reopen these channels to more robust levels. PlasticsExchange expects the import / export balance to change, especially in the PE, as outbound ocean freight is quite cheap compared to imported ocean freight, and US producers have a lot of resin to send overseas. . At some point, perhaps in the next few months, the resin clearinghouse predicts massive exports will expand to remove some or much of the heavy excess inventory.
Not only has the US resin market become accustomed to a much higher overall price point, but inflation issues have also become common, along with the sense of scarcity caused by supply chain disruptions in the market. our industry and beyond. While all markets are cyclical and a correction is just around the corner right now, at least in the spot market, an overall high price point is expected to remain for the foreseeable future.
As supply and demand become more balanced, and in some cases even surplus, the qualities that had reaped the largest premiums may experience the most rapid erosion. As such, high density PE (HD) injection and blow molding grades began to roll out, as did PP block copolymers and random clarified resins. Although some grades of PE are still poorly supplied, such as low density (LD) and linear low density (LLD) PE for injection qualities and rotational molding resins.
Polyethylene trading volumes were below average the week of October 4, as inflated stocks and a loss of appetite for spot resin led to further price erosion. The wider range of grades that were made available and changed hands this week included HDPE Blow Mold and Injection, which had been the most difficult of the base grades to come by this year. It should be noted that better availability for HD Blow and Injection has eaten away at the significant premiums that have been in place since February. Film grades, which have generally been more abundant and easier to source, were more active, with LDPE film changing the most hands alongside unique chords for LLDPE film and high molecular weight film. Although EP spot prices have fallen due to greater availability of supply, a few producers remain on the force majeure, some PE units remain down in Louisiana following Hurricane Ida, and maintenance interruptions are still scheduled throughout the fourth quarter.
PP resin spot prices saw their biggest declines of the year, with a drop of $ 0.06 / lb caused by further improvement in availability, weaker spot demand and lower commodity prices PGP, giving buyers a reason to push back on non-urgent sourcing needs. There were heavier offerings of packaged or ready-to-ship aboveground wagons, a handful of Generic Prime wagons, and plenty of imported Prime trucks, both of which soon landed and ready to ship. There were also a few domestic Prime trucks that eventually entered the market; it should be noted, however, that these trucks are mainly the most common grades of PP homopolymer, while the domestic Prime PP copolymer was still very difficult to find, especially high impact and No Break. PlasticsExchange expects PP prices to continue to decline due to falling monomer costs and the fundamentals of PP supply and demand.
Read the full market update, including updates on PGP prices and energy futures, on the Plastic exchange website.