Resin buyers are dealt four of the wrong kind

Four of a kind. Great in poker, not so great for buyers of commodity resins. North American prices for polyethylene, polypropylene and PVC climbed for the fourth consecutive month in September. Solid demand and production outages combined to tighten markets.

Market sources said the amount and frequency of the increases were historic, especially for summer and early fall, times of year that typically don't see a lot of resin price changes. Some PE, PP and PVC production assets remained down in Louisiana and Texas as a result of the impact of Hurricane Laura in late August. Some makers of those resins had put force majeure sales limits in place as well.

Regional prices for all grades of PE increased 5 cents per pound in September, continuing a streak that now has seen prices for that material shoot up 19 cents in four months. A recovery in demand following the first days of the COVID-19 pandemic played a role in the September hike. Strong export demand had played a role in prior months.

More than 3 billion pounds of PE capacity operated by Westlake Chemical and Sasol Ltd. in Lake Charles, La., remains down. Almost 1 billion pounds of PE capacity operated by Chevron Phillips in Orange, Texas, also was down for part of September. These outages have tightened PE supplies.

In a recent LinkedIn post, PE market analyst Mike Burns asked, "How did the North American PE cost advantage lead to North America becoming the highest PE price on the planet?"

Burns, of Resin Technology Inc. in Fort Worth, Texas, then answered his own question: "The restart of China's plastic manufacturing weeks before the restart of North America's nonessential manufacturing opened a window of opportunity to export record volumes [of PE] to China.

"This sudden depletion of inventories created a sellers' market, as the North American buyer returned seeking to fill an unexpected surge in demand," Burns added." The sudden reduction in inventories and high demand for consumer products supported the increases."

In an Oct. 1 phone interview, Burns said that PE supplies remain tight in North America, especially for blow molding grades. He added that a 5-cent increase proposed for October could go through as well, although a downward price correction is possible in early 2021.

Market analysts Robert Bauman and Esteban Sagel also weighed in on current PE market conditions in emails to Plastics News. Bauman, president of consulting firm Polymer Consulting International Inc. in Ardsley, N.Y., said that four factors were intersecting in the market: first-half financial losses seen by PE makers as a result of the pandemic; capacity outages; higher-than-expected summer demand; and the impact of Hurricane Laura, which pushed through the September increase and could do the same in October.

"When there's a severe capacity constraint, prices increase as they did with Hurricanes Katrina and Rita and from Hurricane Harvey," Bauman said. "I would expect that there would be a correction to prices once all of the capacity is operating, with demand growth supporting higher operating rates with the economy reopening."

Sagel, president of Chemical & Polymer Market Consultants in Houston, said: "I feel we are testing the limits with PE prices."

He added that a recent review he conducted of domestic PE demand in North America showed a contraction in 2020. In spite of that, Sagel said, exports to China, as well as production and weather issues, provided the right environment for prices to rise, countering reduced domestic demand.

But Sagel also pointed out that China PE prices are starting to move lower, and a recent market report indicates that August imports into that country also decreased. "If those trends continue, they don't bode well for the durability of the current high [PE] prices in North America," he said.

Regional PP prices increased by an average of 3 cents per pound in September. Prices had jumped 4 cents in August and now are up a total of 14 cents since June. Market analyst Scott Newell with RTI said that the string of PP price hikes is the result of "an accumulation of things" since June, including propylene monomer feedstock supplies and an increase in PP exports from North America.

Domestic demand started to recover after the surge in exports, he added, but production outages from LyondellBasell Industries in Lake Charles and by Formosa in Point Comfort served to tighten the market. Market sources said that LyondellBasell is in the process of restarting its PP operations in Lake Charles. Producers may get some or all of a 3-cent price hike attempt for October, Newell said, but he also pointed out that the reasons behind the hikes "are all situational and short term — they're not tied to fundamentals."

A 5.5-cent price hike for suspension PVC in September followed a 3-cent upward move from August. Prices for that material now are up 13.5 cents since June. Demand for the material has increased as construction markets have begun to recover from COVID-19. Construction-related uses account for around 60 percent of PVC consumption in the U.S. and Canada.

A market source said that export sales of PVC from North America are strong and that some suppliers "are scrambling for resin to try to keep up with demand."

Formosa and Westlake have force majeure sales limits in place for PVC. Almost 2.1 billion pounds of annual capacity for PVC feedstock VCM operated by Westlake in Lake Charles remains down. Regional PVC makers now are seeking increases of 6.5 cents per pound for October, combining a 4-cent hike originally announced with 2.5 cents that didn't take hold in September.

PET bottle resin prices were up 2 cents per pound in September after coming in flat for the second consecutive month in August. Prices had increased an average of 1.5 cents per pound in June. The September hike came as a bit of a surprise, since demand for the material typically falls in cooler weather, when sales of bottled water and carbonated soft drinks, two major PET uses, decline as well.

In the solid polystyrene market, prices were flat in September after moving up 2 cents in August and a total of 5 cents in June and July. Lesser increases for benzene feedstock, which is used to make styrene monomer, allowed PS prices to remain flat in September. PS supplies could be impacted by the shutdown of almost 600 million pounds of styrene capacity operated by Westlake in Lake Charles.

In feedstocks, prices for West Texas Intermediate oil began September at $42.60 per barrel but had declined to $40.20 by the end of the month for a decline of almost 6 percent.

Prices for natural gas, used as a feedstock in North American PE and PVC, began September at $2.63 per million British thermal units but had slid down to $2.53 by the end of the month for a decline of almost 4 percent.