Resin pricing struggles as demand slumps, China production slows

A summer haze hit North American resin markets in July, leaving prices for three major commodity resins unchanged.

Prices for polyethylene, polypropylene and PVC were flat for the month, while prices for polystyrene declined and PET bottle resin prices saw a slight increase.

Resin market analysts say there are few indications that prices will radically change in the coming months due to decreased demand at home and reduced production in China, leading to fewer exports.

PE prices were flat in July after dropping 3 cents in June. Prices had been flat in both April and May and now are up a net of 3 cents so far in 2023.

Price hikes remain on the table but have been held back by demand that's been average at best. PE producers and buyers have been battling back and forth for much of 2023. Buyers were able to fight off a 5-cent price hike in April, while producers were able to stop an anticipated 3-cent drop in May. Concerns over lower demand amid economic uncertainty and over potential global oversupply of PE resin have been affecting decision-makers in the PE market.

In a recent market report, consulting firm C-MACC of Houston said U.S. contract PE prices "seem set for another sizable negative nonmarket adjustment based on spot price trends." It added that this is happening even as U.S. producers have nominated contract price hikes for August.

Market analyst Mike Burns said in a recent market update that "without a substantial increase, domestic [PE] demand will not influence market prices through the remainder of the year." Exports and supplier production rates "will be the defining component," he added.

"Supplier production rates and continued support of the near record exports will impact inventories and resin price negotiations for the approaching 2024 supply contracts," Burns said.

North American PP resin prices were flat in July after declining an average of 4 cents per pound in June and a total of 23 cents since April. Those declines matched price drops seen for polymer-grade propylene [PGP] feedstock. PP prices had increased 27 cents in the first three months of 2023.

In a recent blog post, John Richardson of Houston-based ICIS said the global PP industry "is facing an unprecedented demand and supply crisis" brought on by what he sees as a failure to recognize that China's growth was going to slow to at least half its annual rate of 2000-19. Richardson added that if China's annual average PP demand growth slips to 5 percent from its long-term historic average of almost 11 percent, global PP capacity in 2024-30 would need to be almost 18 billion pounds lower than currently expected for producers to have a "healthy" average operating rate of 87 percent.

In a more extreme scenario, if China's PP demand growth falls 1.5 percent per year between 2024 and 2030 — which Richardson said "is perfectly possible" — while other developing countries see PP demand growth, then global PP capacity in that period would need to be almost 40 billion pounds lower than expected to achieve that same 87 percent operating rate.

"The core of the problem is that consensus forecasts for China's long-term growth in PP were much higher than even our solid 5 percent base case just a few years ago," Richardson wrote. "This was despite evidence as long ago as 2011 that we would eventually be where are today, which is an economy facing major headwinds from an aging population and overreliance for growth on real estate."

PVC prices were flat in July after declining an average of 2 cents in both May and June. Prices for PVC now are down a net of 2 cents so far this year.

PVC demand remained soft in July as producers struggled with production issues. One market source told PN that recent U.S./Canadian PVC production has been running at less than 65 percent of nameplate capacity.

In the PS market, prices slid 6 cents in July after being down 3 cents in June. Both of those moves were connected to fluctuations in price for benzene feedstock, which is used to make styrene monomer. Benzene prices were down 65 cents to $2.90 per gallon in July. That represents a drop of more than 18 percent vs. the previous month.

North American PS prices now are down a net of 4 cents per pound so far in 2023, with benzene prices down 17 cents. David Barry, a market analyst with PetroChem Wire in Houston, recently told PN that "there's plenty of PS supply relative to current demand, so producers are probably being flexible on pricing."

North American PET bottle resin prices ticked up an average of 1 cent per pound in July after dropping 2 cents in both May and June. The July increase was a result of higher feedstock costs. PET prices now are down a net of 1 cent so far in 2023.

Demand has been less than expected, even as warmer weather increases consumption of bottled water and carbonated soft drinks, two major PET end markets.

First-quarter imports of PET into the U.S. totaled about 420 million pounds, down 25 percent vs. the same quarter in 2022, according to a recent report from market analyst Gareth Lamb with global trading firm Czarnikow in London. Lamb said those totals have been down for three consecutive quarters as demand has weakened.

North American prices for nylon, polycarbonate and ABS resins all have declined since May, according to market sources contacted by PN. Low demand growth from processors and full inventories at the producer level were cited as reasons for the declines.

Prices for nylon 6 resins since May are down 10 cents per pound, on average, with nylon 6/6 prices down an average of 13 cents. PC prices have declined an average of 6 cents, and ABS prices have slumped an average of 7 cents.

Demand for many engineering resins has been "lackluster" so far in 2023, according to a resin buyer in the Midwest U.S. "Automotive is growing, but not at previous levels," the buyer said. "High interest rates have hurt auto sales.

"Appliances also are seeing lower growth, and [resin] inventory levels are high for producer and even for processors, who ended up buying more than they needed," he added. "But some customers think we're at the bottom [of pricing] and are talking about 2024."

In recycled resin markets, prices for post-industrial polypropylene pellets in North America have dropped within the last three months. After consulting market sources, PN has determined that the prices have decreased an average of 3 cents per pound. PN also tightened the range of prices being reported. The new range is 29-31 cents per pound.

"Prices declined because of low virgin PP demand and competition with inexpensive virgin resin — molders tend to turn away from recycled if virgin is less, if they're not required to use recycled," said a recycler in Missouri.

A decrease in demand has affected the market, and prices are expected to stay low through the rest of 2023. In mid-2022, prices were about twice as high.

"I don't believe it [is] a short-term thing; this is the new normal for the next six to 12 months," said a recycler in Ohio. "I hope I am wrong, but I just don't see anything on the horizon to change the underlying weakness in the market right now."

In feedstocks, West Texas Intermediate oil prices opened July at $70.65 per barrel but surged almost 16 percent to $81.80 by the end of the month. Markets for natural gas, used as a feedstock to make PE and PVC, have been lower than expected for much of 2023. Prices started July at $2.80 per million British thermal units but were down 6 percent by the end of the month to close at $2.63.