It is important to note from the chart below that the US plastic resin price index is out of phase with the overall industrial products markets as we saw a shortage driven peak in 2021 – largely weather and supply chain-related. The US on average continues to command resin price premiums relative to Asia. The China polymer surpluses are largely land-locked for now because of very high shipping costs and very high oil-based production costs, and the US surplus is also challenged because of logistic issues with exports. In the US, exporters are building inventory in anticipation of better logistics and on the basis that the surpluses for the most part have customers. If we do see a global slowdown in demand, triggered by inflation – see our most recent Sunday Recap – the inventories in the US and China could become a problem.
Source: Bloomberg, C-MACC Analysis, April 2022
The polypropylene versus polyethylene chart below is also interesting because it suggests a significant margin in switching polymers where you can. Our discussions suggest that much of this has already happened where the switching costs are very low, but the volumes are quite small. The next step would be design changes such that high-density polyethylene could take more volume from polypropylene. If polypropylene prices stay inflated versus other polymers, which is possible given the tightness in the global propane market, we could see polypropylene move out of the packaging and single-use areas – focusing on higher value durables markets. This would make some of the polypropylene recycling ambitions more challenging. For more see today's daily report.
Source: Bloomberg, C-MACC Analysis, April 2022