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PE, PP Resin Prices to Remain Under Pressure in 2023

February 22,2023

PE and PP Resin Prices to Remain Under Pressure in 2023

Prices for polyethylene (PE) and pp polypropylene resins are likely to stay low in 2023, as new production lines come online at the same time that the economy is expected to grow more slowly, lowering demand.

This downward pressure is largely due to diminished demand, higher inventories across the supply chain, and lower feedstock costs. However, new capacities coming on stream and competition from lower-priced imports could also exert downward pressure in the year ahead.

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Economic Slowdown

The global economy continues to slow, and the resulting slowdown is likely to have a significant impact on resin prices. The economic slowdown is largely due to the fact that demand for resins is still low, and the deterioration of the economic outlook is also a result of the ongoing Russia-Ukraine crisis and higher energy prices.

This is affecting the pe polyethylene and polypropylene (PP) markets, and prices have been under pressure since the start of the year. The most important drivers of these declines have been a bearish economic outlook, weak downstream application demand, and several producers cutting their production operating rates in order to limit the impact on their margins.

Moreover, the recent hurricanes that impacted supply chains around the world have made it difficult for companies to restock their inventory levels, and this is expected to have an even larger effect on the prices of resins. However, there are a few bits of good news coming into the market that are expected to support prices in the short run.

First, polyethylene plants in Texas, the source of about 85% of US PE output, are coming back online after being knocked offline by hurricanes earlier this year. This will provide some relief for a lot of the major US converters who rely on resins produced in the Gulf Coast region.

Another welcome development in the US market is that Shell Chemical has commenced operations at its new 1.6 million t/yr PE plant in Monaca, Pennsylvania. The new facility is ideally located within a 700-mile radius of many US PE converters, offering a more convenient supply chain option.

It is not yet known how much the new facility will impact prices. But if it helps US converters source their resins closer to home, prices may become more attractive.

Nonetheless, it is likely that the new capacity will have a negative impact on PP resin prices in the long term. As with other petrochemicals, the cost of producing ethylene has soared over the last six months, and we expect this to continue to push down PP contract prices in the coming year.


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Rising Capacity

A number of new PE/PP plants are expected to start up in 2023, and the capacity expansion could create a competitive market. For example, Bayport Polymers' 625,000 t/yr HDPE unit is set to begin operations in the first quarter of 2023, while Nova Chemicals is expected to start up a 500,000 t/yr LLDPE plant in Sarnia, Ontario, sometime in the first half of the year.

These new capacities will add a significant amount of resin to the North American market, but prices are expected to remain under pressure in 2023. While some of these capacities will be able to drive spot prices down, others will have a more direct impact on contract pricing, thereby increasing the overall supply gap between the PE and PP markets in 2023.

On the other hand, the price of the monomer component of polyethylene (PE) is expected to be higher in 2023 as producers aim to boost their profit margins. The price of ethylene has increased by 24 cents per pound over the last 7 months, and there is a possibility that it will continue to rise in 2023.

The current situation has led to a tighter market for PE and PP products as producers struggle to find a balance between securing sufficient supply and minimizing their production costs. This has led to a drop in the number of items in stock, which is expected to continue until the number of items in stock is back to what is normal for the industry.

In addition, supply constraints and logistics issues have also been weighing heavily on the export market. A senior analyst at ChemAnalyst named Jose Morales said that the amount of traffic at Houston's ports has made it hard for North American PE to be exported, especially since most of the production comes from Texas.

Meanwhile, a large portion of PP production is also sourced in Texas. The region's economy is struggling with a lack of credit and high labor costs, which have caused resin demand to slow.

Nevertheless, despite the tough economic environment, the demand outlook for PP and PE applications remains positive in 2023. In particular, the Lunar New Year is expected to make the second quarter a better time for food packaging, and shrink film applications are also expected to rise. 

Supply Disruption

While supply disruption is not a new issue, it has become an even more pressing issue in the current environment as the economy slows and fears of a recession grow.A number of resin producers are starting up new capacity in the United States in the face of this supply disruption, which will have a negative effect on PE/pp resin prices and margins going into 2023.

RTi purchasing consultant Tom Kallman said, "We've had a lot of disruption, and some plants have been out of commission for a while now." He noted that a number of resin manufacturers are having to deal with severe weather issues, including freezing temperatures and snow storms.

This can have a huge impact on production. During these types of disruptions, companies should take a step back and determine what they absolutely need in order to operate and where those supplies are coming from.

They should then establish alternative suppliers for these critical components and products in order to keep their operations running as smoothly as possible. They should also think about having a "safety stock," which means keeping a little extra inventory on hand in case something goes wrong with the supply chain.

It's important to note that when a company does this, it must carefully weigh the potential benefits and costs involved. The costs can include lost revenues, higher prices that will have to be paid for materials that suddenly become unavailable, and the time and effort it takes to secure these supplies in the event of a supply chain disruption.

Fortunately, a good majority of these disruptions are minor. They are simply the result of an unanticipated supply shortage that's been caused by a natural disaster, plant shutdowns due to weather or other events, or an unexpected shift in the price of raw materials.

The bottom line is that it's always wise to have a healthy stock of a wide variety of raw materials in the event that one of them becomes out of supply. This will not only help keep your operation running smoothly, but it will also help keep a lid on your overall operational expenses.

Lower Demand

As a result of the lower demand, resin prices are expected to remain under pressure in 2023. A number of factors, including a bearish economic outlook, weak downstream demand, and several producers cutting operating rates of polypropylene and polyethylene production units, resulting in narrow profit margins, are expected to be the main contributors to the decline in resin prices.

Despite efforts by PE and PP producers to rebalance supply and demand, prices continue to fall. Also, tightness in the global markets has led to price fluctuations, which are affecting the costs of transportation and logistics.

The latest round of the Russia-Ukraine conflict is also a major contributor to the negative trend in resin prices. It has created instability in the oil and gas markets and could lead to a rise in gas prices, which will negatively affect consumer spending.

According to analysts, the weakening of the economy, lower consumption, and high energy prices are expected to continue in 2023. The weaker demand and higher prices will likely deteriorate the profitability of a number of European plants.

Meathe nwhile, lower demand is expected to push PP and PE prices into the negative zone in the coming year. This is due to a lack of robust demand from the construction and automotive industries. In addition, the strict COVID-19 controls in China are also expected to keep a lid on consumption.

Another factor that will exacerbate the downward trend in PP and PE prices is the rising cost of monomers and resins. The rise in monomer and resin prices is expected to have a negative effect on the global market for plastics.

This will make it difficult for producers to raise production costs and maintain competitive prices. Hence, they will need to cut back on the number of production units and rely on the export market to bring down their inventory levels.

But buyers have already cut back on purchases, so PP and PE sellers won't be able to raise prices in Q1 2023, even if they are able to get rid of their stockpiles and hear good news from China's import market.

While it is not clear whether the supply and demand balance will improve in the upcoming months, the fact that producers have taken action to rebalance the market and have regained pricing power is a positive sign for the future. With new monomer production and a few capacity additions set to start in H1 2023, resin prices are expected to see some improvement.