Spot resin prices continued to soar last week. Even as prices rose, resin remained scarce, and reluctant yet determined buyers paid up in order to procure material, reports the PlasticsExchange in its Market Update. While energy and feedstock costs consolidated recent gains — finally moderating to end the week mildly mixed — resin prices accelerated their ascent and climbed to new cycle highs. Polyethylene (PE) grades gained between $0.04 and 0.06/lb and polypropylene (PP) surged a solid seven cents.
Widespread production issues and force majeure allocations have greatly restricted the flow of resin into the spot market. Though some prime cars manage to trickle through, off grade has been more available, and none of it sticks around very long. The PlasticsExchange notes that its supply partners have largely depleted their warehoused resin stocks and restocking has become a challenge. Consequently, the resin clearinghouse said that it has dug into its strategic supplies to enhance spot market liquidity and promptly deliver resin to market participants during these exceptionally tight times.
I. Robust export demand meets resin production disruptions.
A unique set of circumstances came together to create market conditions like no other. As we have seen periodically over the years, a major hurricane or serious plant fire can whip the resin market into a frenzy, writes the PlasticsExchange. But these actual extreme events were only two among a series of issues that have accumulated to position the US resin supply chain significantly short of product, perpetuating this major bull run. After the 2020 hurricanes, exceptionally robust export demand along with ongoing resin production disruptions, including both planned turnarounds and unexpected outages, kept upstream PE supplies from adequately rebuilding. Further delays in highly anticipated new US PE production only added to the supply woes.
In late November and early December, another surge of PE export demand from Asia caught US processors by surprise, soaking up the slight surplus supplies that were just starting to develop, according to the PlasticsExchange. That dashed US buyers’ hopes for a December price decline and the opportunity to strategically restock their resin coffers. Adding to the market’s upward momentum was the sudden shutdown of the Braskem Idesa PE plant in Mexico, further constraining the region’s resin production. This significant situation has yet to be resolved. Meanwhile, the Mexican government has cut off natural gas supplies to this petrochemical complex, which cracks the ethane to ethylene and produces the feedstock for the plant’s 185 million pounds of high- and low-density PE resin per month. The plant’s customers seeking continuity of supply quickly turned to the US for substitute resin, and the American supply/demand dynamic got even tighter, reports the PlasticsExchange.
As January began, Chinese demand for US PE chilled, as its regional supplies bulged when ocean freight rates from Asia to the Americas added about $0.15/lb to delivered prices, thereby squashing incremental Asian resin sales to Latin America. Once again, shocked buyers turned north for resin supply and this lack of high-volume Asian offers allowed US PE sellers to quickly pivot sales from the cooling Asian region to the hot Latin American market. Without the ultra-competitive Asian supply to contend with, PE prices vacuumed higher, rising an average of $0.09/lb since the beginning of 2021, with some variance seen by grade.
II. US PE resin buyers behind the eight ball.
PE producers have pressed their persistent pricing power to implement contract increase after increase. In fact, $0.24/lb is intact since June, and the current average nickel nomination is imminent to secure in January while another $0.07/lb looms for February, according to the PlasticsExchange. US PE buyers are behind the eight ball: Between their generally light on-hand resin stocks, recovering domestic demand, and justifiable cost-push pressures supporting price increases currently on the table, they have limited ability to resist the increases, and the PlasticsExchange expects the January hike to take hold.
If the PE situation does not seem dire enough, read on, as there is also a PP tale to tell. Even before the 2020 hurricanes shut down a huge PP plant, producers offset dismal pandemic-related demand by purging material into the export market, eventually working down collective producer PP inventories to the lowest level since the PlasticsExchange started keeping records. Ongoing force majeure conditions at multiple PP plants have put resin allocations in place, so many processors have been tapping the spot market in search of product. A large amount of imported PP hit the shores of both US coasts during the fourth quarter, but the brief PP pricing pause in November limited fresh import volumes, which are soon to arrive. While the December/January rally widely re-opened the import arbitrage, the aforementioned jump in ocean freight costs have put a damper on import margins, also impacting volumes.
With PP demand outstripping supply, spot prices shot up well beyond a change in PGP monomer costs, inspiring producers to nominate a series of margin-enhancing price increases. Some of them have been successful already, including $0.03/lb in October/November and $0.04/lb in December.
Although PP resin remains incredibly tight, there could be a limit to current margin-expansion efforts, notes the PlasticsExchange. With a sharp PGP-tied increase lurking around the corner, producers might be challenged to implement both their extra $0.05/lb for January and $0.06/lb margin enhancer in February. This has clearly been a very difficult environment for the entire plastics supply chain, but eventually this too shall pass.
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