Mixed Bag for Prices of the Five Major Commodity Resins at Start of Q2
In the first week of the second quarter, we saw a mixed trajectory for prices of the five major commodity resins, with PE, PVC and PET generally flat; PP dropping; and PS moving up. Although the key drivers vary to some degree, such as record high inventories for polyolefins and upward feedstock pricing for PS, we have a general expectation in the industry that the overall softness in demand through first quarter was coming to an end.
Still, barring the occurrence of production disruptions or other major events, there do not appear to be any projections for significant price surges for this quarter. Take a look at how purchasing consultants from Resin Technology, Inc. (RTi), Fort Worth, Texas; senior editors from Houston-based PetroChemWire (PCW); and CEO Michael Greenberg of the Plastics Exchange in Chicago, see things shaking out at least for the next 60 days or so.
● PE: Prices were flat in March, making this the first time in 10 years that PE pricing did not change through the first quarter, according to Mike Burns, RTi’s v.p. of PE markets. Suppliers generally appeared to have delayed their 3¢/lb March increases to April. PCW senior editor David Barry reported that both Dow Chemical and ExxonMobil had issued additional 3¢/lb price increases for April 1.
Burns, for one, sees the potential for significant downward pricing pressure developing. He says, the continuation of higher oil prices could serve to maintain flat prices. Also, China tariffs—if further delayed or an outcome is decided—could also impact demand and exports. Burns ventures that record high PE inventories will continue to prevent price increases and could even result in downward movement of about 3¢/lb through this quarter. Oil price surges or some other major event would be the only drivers that could change this likely scenario.
The Plastic Exchange’s Greenberg reported on a strong spot PE market through first quarter. Going into April, he notes the following, “Processors have been drawing down their inventories since November and they are now getting quite low, we expect better buying to return in the months ahead.” All sources expected spot PE prices to increase this month. PCW’s Barry characterizes spot supply as mostly balanced, with LLDPE grades showing “signs of length”, as the startup of Sasol’s new plant was adding product to an already flush market.
RTi’s Burns says first quarter export volume has remained at historic high levels, and Greenberg reports that general transaction levels have increased 1-2¢/lb from their cycle low, although buyers are pushing back on any offers higher than that.
Meanwhile, nearly 10% of ethylene production was expected to be down for plant maintenance in second quarter. Prices remained at 15¢/lb. The cost to produce ethylene remains near 13¢/lb. The cost to make a PE pellet is near 30¢/lb from the integrated producer, according to Burns..
● PP: Prices dropped 3¢/lb in March, in step with propylene monomer March contracts, which settled down to 35.5¢/lb. The Plastic Exchange’s Greenberg reported it this way, “This has brought the first quarter decreases to 6.5¢/lb and the total decrease since October to a whopping 24.5¢/lb.”
Resin prices are expected to continue to track the monomer, perhaps bottoming out, according to both PCW’s Barry and Scott Newell, RTi’s v.p. of PP markets. All sources characterize this as a “buyers’ market” and expect a return in demand this quarter. Newell ventures that prices might possibly bottom out and projects flat to slightly higher prices based on demand. Says Newell, “April will be an interesting month. We’ve had negative growth rates so far this year…monomer inventories are high and PP inventories are starting to balance out a bit more, though suppliers are still discounting trying to move material.”
Barry says there was a lot of spot PP very much discounted compared to contract prices through March. But going into April, he describes spot PP prices as steady, with suppliers expected to “test the market with higher prices”. He also notes that PP supplier inventories are believed to be falling, with an uptick in exports activity as well as domestic demand. (In 2018, the busiest months were March-June and August).
Greenberg reports that some change appears to be underway, “Demand has been off so far this year as processors drew down from their on-hand resin inventories; however, with the March decrease intact, some processors are recognizing value at this level and have begun to slowly procure more material that their current usage. It will be interesting to see if this trend gains steam.”
● PS: Prices moved up 2¢/lb in March, and all suppliers have come out with increases of 4¢/lb, effective April 1. The upwards movement was cited as driven by rising benzene prices and tight styrene monomer supply, according to PCW’s Barry. He and Robin Chesshier, RTi’s v.p. of PE, PS and nylon 6 markets, noted that initially the increase appeared to have legs for full implementation, but spot benzene prices abruptly dropped, while ethylene prices are also down.
Both sources venture that suppliers could get a 2¢/lb increase through. Barry reports that the implied styrene cost based on a 30/70 formula of spot ethylene/benzene is down 2¢/lb to 23.7¢/lb going into April, returning to February levels. These sources concede that feedstock costs vs. demand will continue to drive PS prices. Based on forward pricing curves for benzene, both sources venture that the remainder of second quarter would see PS prices flat-to-up. Barry notes that feedstock supply disruptions to inland PS plants were a concern, given forecasts of extreme river flooding in parts of the Midwest. Chesshier notes that some suppliers are already signaling another price increase.
● PVC: Prices appear to have ended flat in March. While suppliers have not rescinded their 2¢/lb increase, at least one industry pundit ventures that barring a major disruptive event, a price reduction of about 1¢/lb is inevitable for April, according to PCW senior editor Donna Todd. Both Todd and Mark Kallman, RTi’s v.p. of PVC and engineering resin markets, noted that spring demand is emerging but it remains to be seen how much strength it will build. Both sources also note industry concerns regarding flooding in the Midwest that is expected to last throughout April, and resultant shipping delays due to submerged railroad tracks.
Kallman ventures that there will be some upward pricing pressure as demand picks up. Still, he notes that domestic and exports demand would be the sole driver for upward pricing. “There is no pressure from feedstock costs (e.g., April ethylene contracts were expected to drop) and export prices are not as robust as in 2018.” Moreover, he characterizes the market as well supplied, with plant utilization rates still in the low 80s percentile.
● PET: Prices for domestic bottle-grade PET ended March and started April, steady in the low 60¢/lb range. According to PCW senior editor Xavier Cronin, business was seen for delivery to locations in Chicago, South, Texas, California and Georgia, for railcars, bulk trucks (about 48,000 lb) and normal truckloads (40,000-42,000 lb). Abundant imported PET from around the world, including China Turkey, and Vietnam, continues to compete with PET made in the US.
Demand is expected to rise this month as "bottle season" begins to emerge, according to a buyer of PET bottles and packaging for a supplier of consumer brand companies. Cronin notes that market sources are predicting PET prices to move up to the mid-60¢/lb range by April’s end. He notes that prices in May, typically move up 1-4 ¢/lb as demand for PET bottles kicks in in earnest. However, he ventures that “chunky import supply” could give buyers pricing leverage with distributors and those representing foreign producers offering resin at a discount to U.S.-produced PET for spot delivery. In some cases, PET producers may possibly have to “pencil down” prime numbers to clear out inventories, he notes.
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