Resin prices continue to hammer processors in 2021

Resin buyers hoping to ease into 2021 had a rude awakening, as a series of price hikes have taken hold in North American markets for polypropylene and other commodity materials.

PP prices have surged an average of 13 cents per pound since Jan. 1, after jumping 14 cents in December. The eye-popping two-month total of 27 cents in increases has led some processors to issue price surcharges on PP-finished products.

Regional prices for polyethylene are up an average of 5 cents per pound since Jan. 1, with PVC prices up 4 cents and prices for solid polystyrene up 5 cents, according to buyers and market sources contacted recently by Plastics News.

The PP market continues to struggle with a chaotic combination of strong demand, high prices for propylene monomer feedstock and unplanned outages at some PP production sites.

In a Jan. 28 statement, Braskem America CEO Mark Nikolich said that fourth-quarter 2020 PP domestic demand was up more than 15 percent vs. 2019. He added that domestic PP demand was at record fourth-quarter levels because of strong demand in packaging and hygiene, as well as pent-up durables demand.

"This strong downstream demand has created significant tightness in the propylene and polypropylene markets," Nikolich said. "To meet market needs, we continue to prioritize our clients in the domestic market while leveraging our new world-scale PP line in La Porte, Texas."

Scott Newell, a PP market analyst with Resin Technology Inc. in Fort Worth, Texas, said in a phone interview that "there's strong [PP resin] demand, but the bigger problem is polymer-grade propylene constricting supply."

"The only thing that could really change the [PP] market is demand destruction because of these high prices, and we might see that," he added.

With gasoline consumption down because of the pandemic, oil refineries are running at lower rates, meaning they're making less propylene monomer as a byproduct. Increased use of natural gas as a plastics feedstock also has tightened propylene supplies, since processing natural gas produces less propylene than crude oil does.

Newell added that high PP prices already are leading buyers to look to imported material and to use more recycled or reprocessed PP if possible.

PP demand from rigid packaging, food packaging and consumer products remains high. One major U.S. PP buyer told Plastics News that his firm isn't yet looking at potential alternate materials because he doesn't think current high prices will have "a lasting effect" on the market.

Market veteran Phil Karig, managing director of Mathelin Bay Associates in St. Louis, agreed that PP users aren't ready to switch resins.

"Every time PP has gone through one of its sharp price run-ups in the last few years, whether caused by monomer or polymer shortfalls or crude oil/propylene spikes, there's a lot of talk of finding alternative resins to avoid price risks in the future," he said in an email. "There has been, however, little in the way of substantial resin substitutions."

Karig added that, in almost every recent instance, lower-priced foreign PP "quickly starts to move into the U.S. to take advantage of price arbitrage opportunities, and the domestic market normally starts getting back into balance after a few months."

"A lot of PP processors are in markets such as yogurt and other dairy products packaging that continue to see strong demand," he said. "The fact that PP prices have been on periodic roller-coaster rides in the last few years has somewhat accustomed processors and their end customers to assume that prices will begin to ease in the not-too-distant future, and that everyone will pretty much just have to grit their teeth in the meantime."

The cost of switching materials and relatively high prices for competing materials such as high density PE also could convince processors to stick with PP, according to market veteran Esteban Sagel, principal of Chemical & Polymer Market Consultants in Houston.

"At current and expected prices, converters won't want to buy PP unless strictly necessary," he said. "I believe converters are going to look for relief in other ways, such as imports."

Sagel added that imports of PP "can help bring North American prices back to earth … when they've lost touch with the rest of the world."

On the PP production side, a plant operated by Total Petrochemicals in La Porte, Texas, remains down after a Dec. 15 fire. Market sources said lines operated by Formosa Plastics Corp. USA and LyondellBasell Industries also remain down at Texas sites.

Regional PP prices now are up 46.5 cents per pound since May, with market sources saying that another double-digit price hike is possible for February.

Regional PE prices jumped 5 cents in January after also moving up by 5 in December. The surprising hikes were caused by strong demand — especially in products sold to grocery stores — and unplanned outages at some production sites, according to RTI PE market analyst Mike Burns.

"The market isn't out of the woods yet," he said. "A lot of people are still looking for material. Any bump in the road can have a big effect."

Burns added that some PE processors are being impacted by a tight labor market. A major PE plant operated by Braskem Idesa also is operating at less than 20 percent of capacity after a dispute with the Mexican government over supplies of natural gas feedstock.

That shutdown has further tightened the market by creating opportunities for U.S. suppliers to sell into Mexico and other parts of Latin America. Sources said that Formosa and LyondellBasell also are having PE production issues at sites in Texas and elsewhere.

Major PE makers now are seeking a 7-cent price increase effective Feb. 1. North American PE prices are up a net of 25 cents since January 2020.

After being flat in December, regional prices for suspension PVC increased by 4 cents per pound in January. Demand is up, as processors that sell products into the building and construction markets look to build inventories.

"We have never seen orders as strong as they were in December and January," a PVC producer told Plastics News. "Many of our customers are out about eight to 16 weeks. By the time they catch up, it will be time to build for the spring."

North American PVC prices now are up a net of 19.5 cents per pound since January 2020, with producers seeking another 3 cents effective Feb. 1. Construction-related uses, including plastic pipe, account for around 60 percent of annual PVC sales in the U.S. and Canada.

U.S. housing starts through October were on pace to reach almost 1.4 million for the year. That rate would be up about 0.5 percent vs. 2019 and up almost 5 percent vs. 2018.

In solid PS, prices moved up 5 cents per pound, after increasing 6 cents in December and 2 in November. The January move again was tied to higher prices for benzene feedstock, which is used to make styrene monomer. Benzene prices jumped 39 cents to $2.43 per gallon for January, an increase of 19 percent vs. the prior month.

PS prices since January 2020 now are up a net of 17 cents. Markets for the material were affected in the second half of 2020 by the temporary shutdown of almost 600 million pounds of styrene capacity operated by Westlake Chemicals Corp. in Lake Charles, La.