Firm to Upward Pricing Still Dominates Commodity Resins, But…

A turnaround quite possible for some resins by early 2018 depending on feedstock costs and supply-demand balance.

Heading into November, commodity resin prices appeared to be holding firm if not on the way up as suppliers aimed to implement previous or new increases and/or margin expansions. While the year may end up with higher prices across the board for most commodity resins, a reversal in the trajectory—or, at very least, some stability once prices have peaked, may be in the offing as we head to first quarter 2018.

Here’s the latest from the weekly reports of  PetrochemWire (PCW) on PE, PP, PS, PVC and PET. Also weighing in on polyolefins is Chicago-based The Plastics Exchange while our pro sources at Resin Technology, Inc., Fort Worth, Texas, weigh in on polyolefins, PS and PVC.

PE: On the contract front, suppliers remained on track to implement a 3¢/lb increase effective Oct. 15 or Nov. 1, reported PCW’s senior editor David Barry. However, he noted that spot PE prices were flat to lower as availability continues to improve. He ventured that domestic sales were expected to weaken in the final two months of 2017 as customers correct from heavy buying through September and October and while seasonal slowdowns set in. “Resellers were working to reduce inventories amid sentiment that prices could drop significantly by year-end.”

Going forward, all post-Harvey production issues have been resolved. Also, September supplier inventories were higher than September 2016, which were considered high then.

The Plastics Exchange’s CEO Michael Greenberg, reported that while spot PE prices were retreating from the post-hurricane highs, contract price levels are playing catch up and continue to rise. “All PE producers have now implemented 7¢/lb of increases, with some billing up an additional 3¢/lb for a total of 10¢/lb since August.” He also noted that blow molding HDPE copolymer continues to be tight.  

Mike Burns, RTi’s v.p. of client services for PE, conceded that while PE contract prices are now 10¢/lb above the July price, all major film suppliers having issued price increases in the 6-8% range, a reversal in the pricing trajectory is beginning. “Expect continued downward pressure starting now, though suppliers will aim to hold on to their increases.” He does not see any market drivers that would support new increases and does not see how current price levels can be sustained as supply improves. “Going forward, all post-Harvey production issues have been resolved. Also, September supplier inventories were higher than September 2016, which were considered high then.” He, as do other industry sources, ventured that these “purely” hurricane-related increases are not likely to last for long.

Addressing the domestic PE exports market, Greenberg noted that domestic and Houston PE prices have been well above international levels, but as the domestic supply conditions improve and an outlet for new PE production is sought, Houston prices will start to drop to facilitate an improved and more typical exports market. “It will be difficult for the domestic PE market to maintain a massive premium over exports for an extended period, so we expect PE for domestic consumption to also see pressure ahead.”

PP:  On the contract front, PP prices moved up in October by 1.5¢/lb, in step with the propylene monomer contract settlement. According to PCW’s Barry, PP suppliers have been phasing in their 3¢/lb expansion since August, with one supplier aiming to implement that increase this month. “With no major expansions on the horizon, North American PP supply was expected to remain balanced-to-tight and provide supplier pricing leverage. However, there was talk that the recent tightening of monomer supply, coupled with PP margin increases, has pushed domestic PP prices slightly above equilibrium with international markets, and further domestic price increases could invite more import competition.”

Scott Newell, RTi’s v.p. of PP markets, saw PP contracts move up in October by 1.5¢/lb, but it did not appear that the 3¢/lb margin expansion was that widely implemented. While he thinks that there will be a 2-3¢/lb margin expansion pushed through ultimately, he ventured that monomer prices may have topped out—noting that spot monomer prices were starting to drop. He added that Enterprise’s new on-purpose propylene (PDH) plant is due to come on stream this month. Also, that while PP inventories were still low, it appears that processors had no trouble getting what they need. And while August-September PP production output was very low, he expected October-November production output to be improved.  “This, along with some demand destruction as prices increased and a bit of softer demand as people hold off buying.”

Weighing in, Greenberg noted that PP contract prices have moved up 12¢/lb including 1.5-2.0¢/lb in October. “While producers will continue to seek to expand margins, we believe the market will also be heavily influenced by monomer costs ahead. While PP prices took a small dip off its cycle highs, somewhat in sympathy with eroding PE levels, we expect PP to stay relatively firm as there is no new production on the horizon. Still, the import arbitrage is not wide enough for huge volumes of speculative PP to be brought to the U.S.”  Similarly, Newell expected a ‘small uptick’ in import volume to be shown post-hurricane.

Spot prices were flat to lower, as some pockets of surplus material surfaced, according to Barry. He also noted that that there was some strong buying among end-users in the last two months, to hedge against post-hurricane supply disruptions, so additional buying through remainder of the year is likely to be lower. Greenberg noted that prime material was noticeably tighter than offgrade, with prices of homopolymer PP mostly firm and copolymer PP losing about 1¢/lb off its premium.

PS: On the contract front, a split among suppliers emerged with one calling for a price rollover from October and another calling for a 2¢/lb increase, effective Nov. 1, according to Barry and Mark Kallman, RTi’s v.p. of client services for engineering resins, PS and PVC. This followed the implementation of a September 3¢/lb increase and an October 3¢/lb increase.

Both sources characterize supply/demand as balanced and agree that the increases have been primarily driven by feedstock costs. Benzene November contract prices settled up 10¢/gal and may have reached their peak. At the same time spot benzene prices are much higher, so it’s unlikely to see significant pull back from feedstock prices, according to Kallman. As such, he ventured that PS prices will remain flat. “We’re in the off-season for PS so we might see some downward pressure…particularly if it becomes a well-supplied market.”

PVC: On the contract front, PVC prices moved up 3¢/lb in October, according to PCW Senior Editor Donna Todd and RTi’s Kallman. Suppliers had sought 5¢/lb. Kallman noted the 3¢/lb Aug.-3¢/lb Sept. dual ethylene contract settlement is equivalent to a 3¢/lb PVC increase. Todd reported that while some PVC suppliers believed they were due the full 5¢/lb increase they sought, both for reimbursement of higher ethylene costs and other costs incurred due to post-Harvey outages, others felt that the 6¢/lb rise in ethylene prices, realistically justified no more than a 3¢/lb PVC price hike.

Both sources noted that spot ethylene prices were dropping while October ethylene contracts settled down 0.5¢/lb. Kallman, for one, expected further decreases this month. Moreover, he said there’s already downward pressure on PVC, as all force majeure actions have been resolved. He ventured that the October PVC price increase would begin to erode this month and may be gone by year end. “Export pricing has been moving lower over the last six weeks, reflecting the fact that suppliers are improving… so domestic prices are poised to follow.”

Todd noted that pipe converters were satisfied with the October price hike, as they were able to push pipe prices to the highest level of the year and had hopes to hold onto them until Thanksgiving. “Converters in other markets were still fighting against even a 3¢/lb uptick, as they didn’t believe that market forces warranted such a price rise. They point out that this will bring the total increase in PVC prices for the year to 9¢/lb, while ethylene contract prices through September were up only 1.75¢/lb above January’s level.”

PET: Editor Xavier Cronin of PCW reported that domestic PET resin on Friday, Nov. 3, was at 66-69¢/lb for railcars and bulk truck delivery Midwest—up 2-4¢/lb on the week. Imported PET reins, with an IV of 78 ml/gram or higher, was at 65-68¢/lb delivered duty paid (DDP) East Coast, 63-67¢/lb DDP West Coast, and 68-72¢/lb DDP Midwest—up 2-5¢/lb. “One reason imports were up is the expectation that anti-dumping duties will be imposed in March 2018 on U.S. PET imports from five countries that accounted for 41% of all imports in Jan.-Aug. 2017.”