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Strong demand, limited supplies, and soaring energy feedstock costs last week led to a predictable outcome: Extremely active spot resin markets and significantly higher prices. Aggressive buying from both processors and resellers brought the highest volume of completed transactions at the PlasticsExchange trading desk since May.

Russian invasion threatens flow of key energy and derivative supplies in Europe

The surge in demand was largely inspired by the Russian invasion of Ukraine, writes the PlasticsExchange in its weekly Market Update. The “special military operation,” as Putin characterizes it, potentially could lead to a much larger conflict and threaten the flow of key energy and derivative supplies in Europe and around the world, putting added strain on an already delicate supply chain. The mad scramble to procure both polyethylene (PE) and polypropylene (PP) resins here in North America, where prices had already been on a recent upswing, added more fuel to the fire and pushed sellers to the sidelines, as they anticipate higher prices ahead, further restricting prompt resin availability, writes the PlasticsExchange. 

The market was already tightly supplied, with few prime railcars offered into the spot market. PE producers positioned for their third attempt to implement their current price increase, which averages $0.04/lb, but could be larger as increases are stacked on the table for March and beyond. The flow of off-grade PP railcars was fairly steady, but they were gobbled up at ever increasing prices all week long. Although the month has barely begun, PP contracts are already poised to jump double digits as spot PGP monomer prices have accelerated to the upside, eerily reminiscent of the massive weather-induced rally exactly a year ago. 

The energy markets exploded this past week, recording huge gains amid wildly volatile trading. The Crude complex soared some $24/bbl to reach its highest levels in more than a decade as the conflict in Eastern Europe escalated. 

Natural gas futures also staged a fierce rally, propelled by the potential of diminishing supplies in Europe resulting from sanctions against Russia, which is also likely to fuel demand for US liquefied natural gas exports.

PE commodity grades move up a cent

PE trading and volumes stayed robust as March began, with the full slate of commodity grades pressing up a cent to their new highest levels of 2022. Pricing could continue to find room at the top as geopolitical and international supply/demand and cost fundamentals have now come into play. The surging market momentum could be enough to fully transition pricing power back into producers’ hands and help with the implementation of their twice-failed $0.04/lb price increase. High-density PE Blow Mold was the primary mover for a second straight week in contrast to limited action for low-density PE and linear-low-density PE Film grades, which both have strong underlying demand but face restricted spot supplies, according to the PlasticsExchange. 

Most prime PE grades have been scarcely available in the spot market, as warehouses stay packed with record supply due to logistical export constraints. With inflation running rampant and international energy and feedstock costs skyrocketing, PE producers seem content to maintain high operating rates and build inventories into new record territory rather than spraying the market with material and compromising domestic PE pricing, writes the PlasticsExchange. Although warehouses already seem full, perhaps they will bulge a bit more until cost-advantaged North American PE producers figure a way to export an extra few hundred million pounds per month beyond the current log-jammed limitations. They do need to figure something out and sooner rather than later, as new production capacity is slated to come online over the course of this year. 

Nickel hike in PP resin prices may only be the start

PP trading had another extraordinarily strong week as rising energy/feedstock prices sent buyers to the market and drove resin prices higher — they rose as much as a nickel this past week, and there is seemingly more upside ahead, according to the PlasticsExchange. Those that waited too long to begin restocking could find themselves behind the proverbial eight ball, as the imminent cost-push March increase could make the February 6-cent hike seem mild. Demand was well above average and heavy volumes traded in Prime homo- and co-polymer PP, alongside significant volume for wide-spec homo- and co-polymer PP, as well. Included in those volumes was a healthy number of sales to Mexico, with a heavy concentration on low and mid-melt homo-polymer PP. High-flow co-polymer PP would have been the biggest mover at the trading desk if more material were available, reports the PlasticsExchange.

As noted a week earlier, upstream PP inventories have backed off peak levels, and producers have not been rushing to flood the market with material. With resellers anticipating the market going higher, they were also reluctant to sell off inventory and instead seek to pad their current stocks. Overseas imports are again another option, but with ports still backed up and super expensive ship space requiring long lead times, few buyers have been open to bringing in material and dealing with port snafus and hefty logistics costs. However, if additional production disruptions come to join in the cost-push rally and North American PP prices really run like they did last year, the import arbitrage could again become compelling.

Read the full Market Update, including news about PGP pricing and energy futures, on the PlasticsExchange website.