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Plastics Market Report

Energy prices have jumped up considerably and many processing plants are in limbo as damages are still being assessed due to the profound effect of Hurricane Harvey’s flooding in Houston, as the city is a major center for the oil and gas industry.

After Hurricane Irma, it appears, according to preliminary reports from Plastics News, that Florida-based industry members have been generally spared from major damage.

For the plastics industry, there have been a number of closures due to flooding and power outages. The damage assessments have begun and will likely continue for several months as production comes back on line. The indirect market conditions, such as currency market ratios and bond liquidity that affect the availability of relief funding and insurance claims, are a witches’ brew whose only effect on the recovery is to put a fog on reliable forecasting.

PetroChemWire (PCW) reports that approximately 80M lbs/day capacity of ethylene production has restarted at this point in the recovery efforts. While the supply disruption would have appeared to cause problems, the storms also created comparable declines in ethylene demand. What may be getting overlooked with that report is that durable goods demand often lag behind until assessments are made and rebuilding plans start seeing definite action. This often creates a building pressure of demand forces leading to spikes when the pressure is released, i.e. projects go from design to implementation.

There are several scenarios on how this market dynamic may affect scrap plastic markets. In the short-term, demand for scrap to fill in for the capacity void will remain as long as it takes for prime resin production capacity to return to normal operations and refill their liquid asset reserves. One of the factors that may affect the recovery of their financial reserves will be whether the umbrella organization for the large-scale production facilities will redirect funds in order to speed up efforts to recapture their lost market share. With estimates of over $180 million in damages, financial institutions may be hesitant to abruptly liquidize assets to fund the recovery demands without extensive reviews. Such a delay may keep the short-term window open for longer.

Scrap prices, according to PCW, have remained stable for most grades. PET bales saw a $0.01/lb average decline last week. PCW also reports that PVC scrap volumes to China and Hong Kong are down on the YtY from 2016 by over 30 percent. The FAS value declines were slightly steeper at 38 percent and 41 percent respectively. For the other polymers, PET and PS scrap have increased volumes on the year but only PET scrap exports to Hong Kong have seen an average price increase. Even for those polymers, the volume increases for the Jan-Jul year on year comparisons were primarily due to much higher volume exports seen during the first four months of the year. So it appears that anticipation of the import restrictions have already been underway before their government soft implementation of September 1, 2017 before the official full implementation of December 31, 2017.

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