Slowing economy drops the hammer on resin prices

Drops in demand and feedstock costs related to COVID-19 sent prices for North American commodity resins down in April.

Economic activity across the region has plummeted as nonessential businesses closed and consumers stayed home as much as possible to prevent the spread of the virus.

Major job cuts across many industries also have dampened consumer spending. On April 29, the U.S. Bureau of Economic Analysis reported that gross domestic product (GDP) decreased by 4.8 percent in the first quarter.

Regional prices for all grades of polyethylene resin fell an average of 4 cents per pound in April. Rising demand for PE in packaging and medical applications was tempered by demand drops in other sectors, such as construction.

Prices for crude oil — a global price-setter for PE — also have tumbled. At the international level, Brent crude prices began the year at $66 per barrel but were at $20.50 in early trading April 29 for a decline of almost 70 percent. In the U.S., prices for West Texas Intermediate (WTI) crude fell from around $61 per barrel to $12.30 in the same comparison for a decline of almost 80 percent.

Liquid food applications — including milk — account for almost 9 percent of annual high density PE consumption in the U.S. and Canada. Other food-related markets account for another 2.5 percent. Food packaging film accounts for almost 18 percent of U.S. and Canadian low density PE consumption and almost 17 percent of the region's linear low density PE use.

North American PE prices had been flat in March, although producers tried to push a 4-cent hike through. Changing market conditions related to COVID-19 eventually led them to suspend that attempt.

Polypropylene prices in the region were down 2 cents per pound in April, mainly as a result of lower demand across several end markets. North American PP prices now have declined for five consecutive months. Those five decreases have lowered prices by a total of 10.5 cents.

The automotive, construction and appliance markets are using less PP as economic uncertainty prompts consumers to delay major purchases. The COVID-19 outbreak is creating higher PP demand for medical uses, such as N95 face masks, which are needed to protect health care providers.

PP sales into food applications also have grown from takeout orders and from higher grocery volume. Food-related applications account for almost 11 percent of the North American PP market.

North American PVC prices dropped 5 cents per pound in April after being flat in March. The 5-cent drop wiped out 5 cents in increases that had taken hold in the first two months of the year.

Construction projects have been delayed and new home sales are down as a result of COVID-19. Rigid pipe and other construction applications account for more than half of PVC consumption in the U.S. and Canada.

Market sources said that sales of PVC into windows and doors also are down. Business shutdowns in India — a major importer of U.S. PVC — also have affected demand.

Regional prices for solid polystyrene tumbled an average of 7 cents per pound in April, with some buyers seeing declines of as much as 9 cents. PS maker Americas Styrenics had pre-announced a 7-cent price reduction on April 1.

The PS decrease mainly was caused by a massive drop in price for benzene feedstock, which is used to make styrene monomer. Benzene prices plummeted from $2.57 per gallon in March to $1.21 in April, a plunge of almost 53 percent.

North American PS prices had been flat for the fifth consecutive month in March. Regional PS demand had been strong in March, as consumers loaded up on food packaging and foodservice items in advance of the COVID-19 crisis. PS operating rates in the region were up as a result. Market sources said that North American PS and benzene prices could be lower still in April, as the collapse of market pricing is more strongly felt.

North American PET bottle resin prices slid 5 cents in April, as lower oil prices drive down prices for paraxylene and purified terephthalic acid (PTA) feedstocks. Prices for the material had fallen 4 cents in March and now have decreased in five of the last six months, bringing prices down a total of 12 cents.

Although PET demand increases in warmer months with higher beverage consumption, the domestic PET market remains oversupplied. PET demand in one way could benefit from COVID-19, as consumers load up on bottled water, a major PET application.

In spite of the April price drops for PE and PP, ethylene and propylene feedstocks "have seen better demand than most refined product markets, owing to the surging worldwide need for medical supplies and flexible packaging for consumer goods and food," according to a recent report from the Oil Price Information Service (OPIS) in Houston.

The report also cited record U.S./Canadian PE sales of almost 4.7 billion pounds for March, according to the American Chemistry Council.

"The figures verify anecdotal evidence of strong plastics demand in March, as consumers rushed to stock up on food and supplies — much of it packaged in plastic film or containers — in preparation for sheltering at home from COVID-19," OPIS officials said in the report.

Officials added that some PE makers "were sounding notes of caution" about second-quarter demand and were said to be trimming rates to balance output against lower demand forecasts.

In the PP market, the OPIS report cited ACC data showing North American PP sales at a seven-month high of 1.43 billion pounds in March. But officials said that, as with PE, the PP demand outlook "may not be as rosy" as March sales figures would suggest.

They pointed out strong medical PP demand, but also said that a large portion of PP goes into rigid durable goods such as car parts and plastic totes, and the molders of these goods "are the companies slowing down the most in recent weeks."

Market analyst Ashish Chitalia said in an email to Plastics News that commodity plastics "are witnessing a pause" in markets for durables, automotive and white goods, while seeing strong demand for essential goods in health care, consumer products, and food packaging.

The overall trend for commodities is trending down as the market moves into the second quarter.

"We are expecting the demand in May to be lower than April, as some pre-social distancing material reached downstream facilities in April," said Chitalia, who is with the Wood Mackenzie consulting firm in Houston. "But May buying will be scarce and on an as-needed basis."

He added that, given the loss in competitiveness due to low oil prices, many U.S. PE facilities are evaluating reduced operating rates due to a lack of margins and demand.

"Exporting the [PE] resin will be challenging not only due to low resin prices but also because China is witnessing the lack of finished goods demand, which is now translating into a lack of resin demand globally," Chitalia said.

Wood MacKenzie expects another drop in PE prices in May, with regional resin demand starting to improve in the third quarter of the year.