August contracts in the US/Canada polypropylene (PP) market declined on average by 4.5¢/lb, including a 1.5¢/lb decline in August polymer-grade propylene (PGP) contracts as well as around 3¢/lb of PP margin compression.
For most PP contracts any increase or decrease in PGP contracts is automatically passed along to PP customers. Anything in addition to the feedstock-related increase is considered a margin increase or decrease.
PP producers were able to push through between 4-7¢/lb of margin increases to customers in April, due to supply concerns caused by global disruptions related to the US war with Iran. However, buyers have been pressing for at least some of that margin increase to come out since July, arguing that the feared supply constraints used to justify the increases never materialized.
Initially, there had been an expectation that US and Canadian producers would significantly increase export volumes to help fill in supply gaps caused by outages in the Middle East. But global prices never rose enough to make PP exports out of North America attractive to producers.
With material not moving offshore, supply in the North American market remained balanced-to-long.
Spot domestic prices declined over July and August, creating pressure for contract margins to fall in August, buyers said.
"I'm buying at back to almost January numbers on the spot side," said one buyer, who said the decline in spot prices helped to support the margin contraction.
Buyers said they will push for the remainder of the April margin increase to come out by the year in annual contract negotiations.
But producers said they believe some of the margin increase will need to stick in order to support higher operating rates.
"We have seen additive costs go up, transportation costs go up," said a US producer. "We need to keep some [margin]."
PP demand in North America has been steady. The market is still showing year-to-date growth of around 5.8pc through July, according to data from the American Chemistry Council. Market participants attribute the growth to a combination of fewer resin imports and fewer plastics finished goods coming into the US due to both new tariffs and supply disruptions caused by the US-Iran war.
There are some concerns about future demand for certain plastics due to new tariffs announced by the US and Canada. While resin itself is not on the list of tariffed items, certain plastics items are, which could limit some demand at the converter level on both sides of the US/Canada border.
So far, the situation has not resulted in any cancelled resin orders, according to one US PP producer. But buyers and producers are keeping a close eye on any new developments.
