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Spot resin trading activity improved during the first full week of October. The Plastics Exchange reported in its market update that the price of polyethylene (PE) has fallen by 2 to 3 cents, and the price of polypropylene (PP) has fallen by at least one-fifth, leading to better demand and more changes. Strong completion volume.
Although compared with the end of September, there are fewer offers at significant discounts, but a wider range of grades can be obtained at lower prices, which seems to have leaked in the second half of this week. Some processors, who usually use the spot market to supply both PE and PP, are satisfied with cheaper materials and select them based on purchase orders, although only when needed rather than restocking. However, many other processors are still on the sidelines, choosing to reduce existing inventories accumulated during the summer as a physical hedge against potential hurricane-related outages.
Hurricanes Ida and Nicholas did cause some production problems in late August and early September, but they were relatively mild, especially considering the large collective producer inventories that have been increasing since March. Although the producer's direct export plan continues to provide a strong foundation for export sales, the increase in exports through traditional brokerage channels throughout the summer is small. At the same time, the speed of the resin reactor remains strong, so inventory rebuilding has become untenable and some material needs to be removed. These channels only started to be used in higher volumes in late September, as producers drastically lowered their export quotations to transfer more materials. PlasticsExchange believes that this trend will continue.
Since the beginning of 2021, PE producers have successfully implemented price increases ranging from US$0.41 to US$0.43 per pound. However, the last two attempts to increase the price of an additional $0.05/lb failed to materialize in August and September. There will be a third attempt to increase the price of nickel in October, although the current spot level makes it very doubtful whether this increase will gain a foothold. According to the Plastics Exchange, although the October PE contract is completely likely to stabilize again, after such a long series of increases, considering that domestic discounted shipments are now becoming more common, the official price drop is also justified .
The PP contract rose by US$0.57/lb from January to August, of which the price of monomer rose by US$0.385/lb and net profit increased by US$0.185/lb. The PP contract fell by US$0.03/lb in September, commensurate with the drop in the price of the PGP contract. The last few attempts to increase profit margins have also fallen on deaf ears, and the retry in October seems unlikely to succeed. In fact, in view of the decline in spot PGP monomers, PlasticsExchange currently expects a single-digit drop in PP contracts in October and may grow to double digits. But before the contract is negotiated, the monomer still has plenty of time to move around.
Analysts have seen that the spot pricing discounts for GM's main and wide-spec PP resins outweighed the decline in spot monomers. Although some profit margin declines are also reasonable, the major indexes may eventually give producers generously and keep the profit margin levels unchanged by cancelling the October PP contract based solely on the decline in PGP costs. PlasticsExchange pointed out that it was very bullish in the first seven months of the year, became neutral in August, and then bearish in September. It had predicted a decline in the fourth quarter a long time ago, which could be very steep. "Indeed, we are seeing the market closing positions as expected," PlasticsExchange wrote in its market update.
The prices of PE and PP have both fallen from record levels; they are not relatively free fall, although there may be more downside in the future. Contrary to this, there are concerns about insufficient electricity in China, which has already begun to cut the production of petrochemicals and resins in certain factories. This may alleviate global supply concerns and has also raised resin prices in Asia. But please note that, according to the Plastics Exchange, Asian resin prices are already well below North American levels, and as prices in these regions are closing the gap, there is still some way to go before Asian arbitrage is truly opened.
Compared with most international resin production peers, North American PE producers continue to enjoy huge cost advantages and have the ability to become competitive according to the needs of the international market. However, it will take some time to reopen these channels to a stronger level. PlasticsExchange expects that the balance of imports and exports will change, especially with regard to PE, because export shipping is quite cheap compared to import shipping, and US producers have a large amount of resin that can be shipped overseas. At some point, perhaps in the next few months, the Resin Clearing House is expected to develop large-scale exports to clear some or most of the heavy inventory backlog.
Not only has the U.S. resin market become accustomed to higher overall price levels, but inflation concerns have also become widespread, as well as the sense of scarcity brought about by supply chain disruptions in our industry and other industries. Although all markets are circulating and are currently adjusting, at least in the spot market, the overall price level is expected to remain unchanged for the foreseeable future.
As supply and demand become more balanced, and in some cases even oversupply, the grade that receives the largest premium may be eroded the fastest. As a result, high-density (HD) PE injection and blow molding grades have begun to shrink, as do PP block copolymers and random clarification resins. Although some PE grades are still rarely available, such as low density (LD) and linear low density (LLD) PE of injection molding grade and rotomolding resin.
The trading volume of polyethylene in the week of October 4 was below average, as the increase in inventory and the decline in interest in spot resin led to a further drop in prices. The broader grades offered and changed hands this week include HDPE blow molding and injection molding, which are the most difficult commodity grades to obtain this year. It is worth noting that the better availability of HD Blow and Injection has eroded the huge premium since February. Generally, more abundant and easier-to-purchase film grades are more active, with LDPE films changing hands the most, and a one-time transaction of LLDPE films and high-molecular-weight films. Although PE spot prices have fallen due to increased supply, some producers are still in a state of force majeure, some PE devices in Louisiana are still in decline after Hurricane Ida, and maintenance shutdowns are still planned throughout the fourth quarter.
Spot PP resin prices have seen the biggest drop this year. Further improvement in supply, weak spot demand and falling raw material PGP prices have given buyers reasons to postpone non-emergency procurement demand, which fell by US$0.06 per pound. There are non-grade rail cars with heavier packaging or ready for shipment, a few Generic Prime rail cars and a large number of imported Prime trucks, all of which will soon land and be ready for shipment. There are also several domestic Prime trucks finally entering the market; but it is worth noting that these trucks are mainly homo PP of the most common brands, while Prime domestic copolymer PP is still difficult to purchase, especially for high impact and no breaks. The Plastics Exchange expects that PP prices will continue to fall based on lower monomer costs and PP supply and demand fundamentals.
Read the full market update on the PlasticsExchange website, including updates on PGP pricing and energy futures.
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