Spot resin trading improved a bit this week, overall activity and completed volumes exceeded previous week’s levels, but still fell decently short of the average weekly performance that we achieved during the first quarter of 2020. Prices for all commodity grade resins continued to slide and most Polyethylene and Polypropylene materials peeled off another penny. The beginning of May will mark the first instances of states reopening/restarting their economies and we are all optimistic that we can quickly get back to business as usual and move past this disruptive world event. Until then, the reseller community as a whole will continue to grind this out and try to move their high-cost inventory with minimal loss. It is a delicate dance in this very competitive arena as fresh railcar offers are well-discounted, while material for immediate shipment maintains an eroding premium. April PE contracts appear to be settling with a $.04/lb decrease, essentially wiping away the increase that was implemented in January. PP producers are battling a small penny or so PGP cost decrease in April against an effort to expand resin margins a bit; we still expect to see PP contracts steady at best, with the likelihood of a small decrease. Incremental resin exports have become very difficult considering general uncertainty and competitive offers from other regions. However, large swaths of material are reportedly still selling to offshore locations at deeply discounted prices, either direct or through several major exporters.
Crude Oil prices cratered in an absolute epic way amid historic volatility. On the previous Friday, the realization that oil storage was nearing capacity sent the soon to expire May WTI Oil contract falling to a low of $17.31/bbl. When trading opened this past Monday, long position holders scrambled to sell their positions, but buyers were barely to be found. As the price decline accelerated, margin sales were triggered and sent prices into a freefall – and they did not stop at zero. In an unprecedented event, the price for a barrel of Crude Oil fell to a staggering low of negative $40/bbl, yes, some sellers received nothing for their oil and actually had to fork over an astonishing
$40K for the privilege of liquidating each 1,000 barrel position. By the Tuesday expiration, the relatively few remaining long position holders of the May contract took part in the single largest oil recovery rally in history, some $50/bbl, but to only settle around positive $10/bbl. However, for most, the devastating damage was already done.
While June WTI somewhat held its ground on Monday, it collapsed on Tuesday and changed hands as low as $6.50/ bbl, as participants feared that the oil storage issue would not quickly resolve. It proceeded to pare its losses throughout the week and finished Friday at $16.94/bbl, down $8.09/bbl, a 32% loss. Brent Oil did not face the same storage issues as here in the US, but was still dragged much lower and the June contract erased a net $6.64/bbl to end the week at $21.44/bbl. Nat Gas futures began the week with strength, reaching as high as $2.10/mmBtu, but the June contract gave back all of its gains and ended at $1.895/mmBtu, less than a penny loss. NGLs were mixed, Ethane added $.037/gal to $.158/gal ($.067/lb) while Propane lost $.046/gal to $.34/gal ($.096/lb).
Trading in the monomer markets was sporadic, volume was slightly below average and prices were mostly flat. The majority of Ethylene activity took place during the first half of the week with a few deals struck for future deliveries. Prompt Ethylene saw a healthy flow of bids / offers but traders were apparently unable to match up on price for either Houston or Louisiana material. Interest continued into late week, and on Friday, April Ethylene had eeked out a fractional gain, but still settled below $.09/lb. Like Ethylene, there were plenty of Propylene transactions, but they were all executed for future deliveries rather than prompt. Occasional inquiries for spot material poked the market throughout the week, but no April deals were visibly inked. By Friday afternoon, April PGP had inched fractionally higher to settle just above $.24/lb. Current spot levels maintain our expectations for an April PGP decrease of 1-2 cents.
Spot Polyethylene trading continued to be off of the hectic pace that we had grown accustomed to in the first part of the year. It was fully expected that a tougher demand environment would develop as the globe continues to work through stay at home orders. It has been difficult to move large slugs of material into the domestic market as processors seek minimal supplies as they wait for both cheaper material and improved demand. Our spot prices mostly lost a penny this past week, the lone resin which shed $.02/lb was LDPE Film which has started to loosen up. April contract prices seem to be settling $.04/lb lower and large buyers will soon begin working on a May decrease. China, who seems to have COVID in its tailwinds, has been advantageously buying material at aggressive prices to fill up their coffers, traders from other regions have also been sniffing for fire-sale type resin deals from the US as storage becomes limited and domestic demand struggles.
However, the recent historic Crude Oil price plunge has essentially eliminated the huge and many years long competitive cost advantage that North American NGL based Polyethylene producers have enjoyed over their International Naphtha based counterparts. This has created a very serious upstream situation as the massive Petrochemical capacity expansions built over the past several years were primarily developed for the export of resin. Aside from worldwide resin demand taking a huge Coronavirus hit, the loss of easily exporting incremental pounds from North America will likely require the short term rationing of resin production, and if long lasting, perhaps the actual shut down of some crackers and reactors.
Spot Polypropylene trading chugged along, it was a good week considering the overall situation at hand. Completed volumes favored railcars over truckloads, CoPP was the main mover and prime sold more than widespec. Resin supply outstripped demand and prices ended the week another penny lower, with deeper discounts seen for Houston shipments as producers desire the quick return of their railcars. Domestic availability remained ample and truckload supply caught up, as multiple resellers sent us their nationwide inventory lists looking to lighten positions as lower priced railcars begin hitting packaging lines. April PGP has not settled yet, but we expect a 1-2 cent decrease. Polypropylene producers on the other hand are trying to increase margins a tad by keeping contracts flat. We have thought for some time that given low inventory ted margin expansion would make sense, but it’s been an uphill battle for US producers to secure.
Shannon Industrial is a unique business with over 50yrs experience in the plastic industry. Shannon’s Beliefs have always been loyalty, growing relationships, and providing the best possible service based on those relationships. With Shannon’s 65,000 square foot warehouse, and 38 car rail siting we have over 3 million pounds of material on hand. Material’s ranging from Commodity resins to the most obscure exotics. Shannon can accommodate orders and execute delivery on a moment’s notice.
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