Plastic World

Weekly resin report: Processors enjoy rare taste of pricing power
Updated on: 05/12/2018

Spot resin trading rebounded during the final week of November, reports the PlasticsExchange (Chicago) in its Market Update. November had been sputtering along, but last week's strong volumes helped to raise the month to a solid average.

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Spot pricing for both polyethylene (PE) and polypropylene (PP) remained weak, with losses of $0.01 to 0.02/lb common, depending on grade. The flow of fresh offers was healthy, as most resellers looked to flip domestic railcars rather than take additional material into inventory, writes the PlasticsExchange. Other suppliers with packaged warehoused material ready to go were also eager to sell and lowered prices to attract buyers. Processors have been enjoying a rare taste of pricing power: They have been limiting purchases, awaiting cheaper prices, and their patience was rewarded last week. Contract decreases for both PE and PP were confirmed for November. Export levels have been weakening, as new yearly lows in crude oil are working their way downstream into international resin prices.

The PE market, which had been relatively anemic during much of November, sprang back to life just in time to salvage the month. Transacted volumes monitored by the PlasticsExchange increased significantly, nearly matching the previous three weeks combined. Fresh offerings were heavy, and spot prices continued to slide, with widespread additional losses of $0.01 to 0.02/lb, bringing new lows for the year. After another unsuccessful attempt to implement a $0.03/lb increase in November, producers began to acquiesce to customer demand for price relief and provided a $0.03/lb decrease instead.

Although oil prices stopped sliding, the overall weakness has lowered export prices, resulting in Houston warehouses being slammed with packaging requests. This market dynamic has forced producers to drop their asking prices to compete with other international regions.

Buyers were driven back to the market for different reasons: Some needed to procure minimal spot material to keep their plants running, while others, appreciative of the recent price decline, ordered a bit more for immediate use and to add to their coffers. Some processors have reported a slowing in end-user demand and simply do not have the orders to maintain the purchasing pace they had during 2018. There could be more downside in December.

In contrast to the rest of November, PP trading perked up substantially as the month drew to a close. Both the flow of offers and completed volumes were above average, while prices shed another cent. Volumes favored co-polymer PP over homo-polymer PP, and prime was preferred to off grade. Resellers and traders alike came to the market to procure material that seemed to be on sale.

Asking prices for prime railcars were often quoted as a premium over contract monomer; not only has monomer fallen, but the premium has eroded nearly a dime from peak pricing, according to the PlasticsExchange. November PP contracts averaged a $0.10/lb decrease, and given current PGP monomer prices—December PGP was valued at just $0.385/lb, down an astounding $0.08/lb on the week—another large decrease is anticipated for December.

The sharp and swift market correction has shut down the import arbitrage, leading the PlasticsExchange to anticipate fewer speculative pounds inbound during December, which could eventually lead to a lack of PP supply early in the new year.