PE, PP offer into Mexico challenged by North American turnarounds, inventory buildup

Mexican resin demand has recovered and climbed back to pre-pandemic levels but prices have surged compared with 2020 in part because of diminished North American supplies amid turnarounds and as manufacturers build up more inventory, a Mexican market expert told Reuters Events Downstream.

Image courtesy of ThamYuanYuan/Pixabay

North American resin supply is seeing “pressure on the side of feedstock, with a limited offer because many producers have assigned part of their production to building inventory in preparation for the start of the hurricane season,” Fernando Montalvo, a Mexico-based sales executive, told Reuters Events.

Looking ahead, resin demand may see support from a post-Covid, broad economy recovery as immunizations advance but some level of pandemic-related uncertainty remains.

“We anticipate that demand for resin commodities will continue increasing but cannot rule out that the country may suffer a new increase in the number of contagion cases as it has happened in India, Brazil and Chile,” Montalvo added.

U.S. Gulf turnarounds slash supplies to Mexico

On polypropylene (PP), there is “strong demand from manufacturers in an increasingly open economy, going back to levels similar to those seen before the pandemic,” he said.

Post-pandemic changes in consumer behavior such as “prioritizing hygiene and plastic products cleanliness” have helped packaging demand. As a result, there has been a considerable price increase seen since the second quarter of 2020, Montalvo added.

As of the start of July, the U.S. Gulf Coast PP offer of material into Mexico “continues limited,” he said.

“Dow, Formosa Plastics, Marathon, Flint Hills and others have their propylene units in turnaround and/or maintenance, according to reports; Phillip 66 and Formosa have yet to lift force majeure declarations issued a few months ago,” he added.

Petrochemical executives had said in 2020 that resin producers postponed several turnarounds due to pandemic restrictions.

Price increases may displace consumers

“The spot offer of co-polymers is even smaller than that of homopolymers,” he said.

Homo polymer resin comes from a single polymer while copolymers have more than one, usually for added strength. PP is the most common plastic in light vehicles representing about 30% of the total plastic content. PP is also a raw material for products like packaging and textiles.

“We have seen in Mexico PP homo offers, South American origin, and other unusual offers of material from the Middle East, with lead times between one to two months,” Montalvo added.

“In July we will return to a trend of increases and it is possible that some producers may try to expand margins,” he added.

But if that happens, product manufacturers could begin to look elsewhere besides PP for their raw material for their products, or adopt changes to try to reduce PP purchases.

“If this situation continues, we will see attempts by manufacturers to return to the path of adoption of other less expensive materials, like polystyrene (PS), which is only viable for some,” he said.

The ongoing increase in resin virgin prices “may push the market to try alternatives such as adding calcium carbonate with PP base and those that have certifications that they can help reduce the footprint of final products,” he said.

The current market may also offer opportunities for “recycled material or with a circular economy strategy,” Montalvo added.

Limited PE availability

As for polyethylene (PE), the Mexican market has faced “a situation similar to that of the PP market: a very limited offer particularly for HDPE (high-density polyethylene), BM (blow molding), LDPE (low density polyethylene) Film Clarity,” Montalvo said.

“In recent days we saw the addition of LLDPE (linear-low-density polyethylene) to the list of materials with shortages,” after the force majeure declaration by LyondellBasell in La Porte, Texas, he said.

As for state oil refinery and petrochemical manufacturer Pemex, it “continues with very limited production levels of monomers and polymers.” he said.  Pemex and Braskem Idesa have reportedly had to resort to imports of ethane as well as ethylene, he said.

As for PE demand, it “has been very strong despite the price increases,” he added.

“Materials such as HDPE BM, rotomolding and LDPE barefoot are at the top of the list. In the spot market we have received a few material offers that are sold  ‘as is’ mainly HDPE BM and LLDPE of North American origin, and some prime from Asia with lead times of up to three months that were taken by some customers,” Montalvo said.

Economy strength

“We anticipate that the second half of 2021 will be one of decisive recovery of economic activity, boosted also by the U.S. reopening and supported by the partial return of on-site schooling in Mexico and a broad immunization campaign against Covid-19,” Montalvo said.

The Bank of Mexico projected in June a 6% gross domestic product expansion this year, up from a previous 4.8% forecast.

“Several economy specialists consider that Mexico may end 2021 with growth between 6% to 7%,” Montalvo said.

Along with the fast growing economy and rises in commodity prices like those of resins there is concern in Mexico about inflationary pressures.  

The Mexican central bank unexpectedly announced in June rises to interest rates while at the same time warned about rising inflation expectations.

The bank keeps an annual inflation target of 3%, plus or minus 100 basis points, but it surpassed 6% in the first half of June. The goal is to gradually bring it down to 3% by the third quarter 2022.

By Renzo Pipoli