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May 06, 2021 04:07 PM

Supply shortfall continues in PP even as prices ease

Frank Esposito
Senior Staff Reporter
Plastics News Staff
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    The North American polypropylene resin market had another surprising month in April, with prices falling an average of 7 cents per pound even as demand remained high.

    Prices for PET bottle resin also continued their steady rise, moving up an average of 2 cents per pound in April.

    The 7-cent drop for PP was the result of a 13-cent decline in price for polymer-grade propylene (PGP) feedstock, combined with 6 cents in margin improvement won by regional PP makers.

    Although demand for PP remained high, PP production in the region still hasn't returned to its levels before Winter Storm Uri hit Texas in mid-February, temporarily knocking out almost 90 percent of PP production. As a result, less propylene was consumed both in April and March. PGP fell 18.5 cents, with PP down 12.5 cents, with producers again gaining 6 cents in margin.

    Prior to the 18.5-cent decline in PP prices in March and April, regional prices had rocketed up 61 cents in the three-month December-February period, as supplies of both resin and monomer already were tight.

    "Demand [for PP] is there; it's more about replenishing of supply," said Scott Newell, a market analyst with Resin Technology Inc. in Fort Worth, Texas.

    "Supplies are improving, with operating rates at 80 percent or higher, but most suppliers are still on allocation," he added.

    One resin distribution executive contacted by Plastics News was more blunt in his assessment of the PP market. "If you don't have a contract, you're not getting polypropylene," he said. "It might be June or July until the market gets normalized."

    Lack of available PP has led some processors to run at lower rates, especially on weekends, according to Newell. Some processors also have struggled to find available labor, especially for entry-level jobs, he added.

    "Orders are there and [PP] demand is strong," Newell said. "There's been no demand destruction. It's almost like consumers have money and they don't care what the price is."

    May could bring another directional swing in PP prices, with PGP prices expected to be up 10 cents or more, according to market sources. If PP makers are able to get even more margin improvement, PP prices could see a double-digit jump. Resin suppliers have gained 28 cents in margin improvement in the last year, according to Newell.

    In PET, the 2-cent April hike followed a 4-cent gain in March. Prices for the material now are up a total of 12 cents so far in 2021. Beverage suppliers are building inventories of the material in advance of higher consumption during warmer summer months.

    Although production of PET bottle resin itself was not much affected by the cold snap, some plants that make feedstocks needed to make the resin were down.

    Bottled water has been the largest beverage market in the U.S. since 2016, when it surpassed carbonated soft drinks, according to the Beverage Marketing Corp. In 2019, PET bottles accounted for 70 percent of U.S. bottled water production, BMC officials said in a late 2020 report.

    In a market study released in early 2021, BMC said that the global bottled water industry in the past three years has been slowed by decelerating growth in Asia and particularly in China, the top consuming region and country on a global basis.

    The report added that traditional bottled water markets, such as Europe, have been "fairly weak" in recent years, while North America "has performed solidly if unspectacularly."

    Looking ahead, the BMC report said that "modest consumption growth" for bottled water will continue in the next several years, aided by continued modernization in developing nations, which are shifting from tap water to packaged water. "Growing health consciousness continues to be a driver for more developed regions," according to the report.

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