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Commodity in focus: Resins

Posted by: 
Nishita Sharma
 | Jul 2021

It’s been a rollercoaster 18 months across global resin markets. We look at the causes of that volatility, and what the second half of 2021 may hold for category and commodity managers.

With such a broad range of drivers influencing prices and demand for resins – from an intrinsic link to the Brent crude oil market, to macroeconomic factors like global growth rates – key resin markets can be volatile at the best of times.

But, with the pandemic triggering huge shifts in consumer behaviour, we’ve seen demand for packaging – which accounts for around 60% of all resin demand – skyrocket this year. From an increase in online shopping, to rising demand for food deliveries and home dining, these changes in customer habits have had a major impact on Polyethylene (PE), Polypropylene (PP) and Polyethylene Terephthalate (PET) markets.

To explore the reasons behind those shifts, and understand what the second half of 2021 may hold for resin category and commodity managers, we recently held a live webinar looking at global resin markets.

Here’s an overview of what The Smart Cube’s experts had to share.

Looking back: The big dip of 2020

As shown in the chart below, global resin prices took a steep dive in the first half of 2020. The most obvious reason for that slide was the global pandemic, especially in the months of March, April and May, when large swathes of the world were under strict lockdowns and organisations hadn’t yet adapted to operating in these conditions.

But, as the chart also shows, not all resin markets were hit equally. PET resin took a disproportionately steep dive due to decreased demand from the tourism and hospitality sectors caused by global lockdowns. Meanwhile, PP and HDPE markets were relatively less affected, as a drop in overall demand was quickly tempered by an increase in demand for plastic-based PPE and hygienic packaging for food and healthcare products, triggered by shifts in consumer behaviour during the pandemic.

Resins-Price-Declined-in-2020

While the dip lines up very clearly with the first global surge in COVID-19 cases and the introduction of lockdowns across much of the world, there was actually much more at play during these months.

Brent crude oil – the base resource that most resin markets track – suffered its own collapse in demand during the pandemic. Lockdowns and travel restrictions caused a drop of 8.6 million barrels per day in global oil demand, the largest annual decline in the history of crude oil pricing.

This steep drop in global demand, paired with a 35% year-on-year slide in crude oil prices, came together to drive prices to a deep low, before they started to rebound in late 2020.

Q1&2 2021: The steep rise

Just a few months after that price dip, global resin prices hadn’t just recovered – they were hitting all-time highs, as shown in the chart below. Looking at the causes of the dip in 2020, it would be easy to conclude that this steep rise in prices was simply caused by pent-up demand following the pandemic.

Resins-Price-Reached-Record-High-Level-in-H1-2021

While pent-up demand and a return to ‘normal’ operations account for some of this increase, in practice these multi-year high prices were fuelled by several factors:

  • Sharp recovery in the Brent crude oil market: Following the period of deflated demand and oversupply in 2020, many crude oil producing countries have taken action to reduce supply this year to help support prices. These output restrictions, paired with a return to healthy levels of crude oil demand, have caused an upward trend in the price of Brent crude – a trend that’s now reflected in resin prices. Currently, we forecast that Brent crude will trade between 68-78 USD per barrel during the second half of 2021.
  • The US deep freeze: In February 2021, a deep freeze hit the area surrounding Texas – the US petrochemical hub – affecting 80% of the country’s petrochemical output capacity. This caused a significant drop in supply from US resin manufacturers.
  • A surge in packaging demand: Demand for resin-based packaging has been consistently high in the post-pandemic world – from packaging takeout food and safeguarding against COVID-19 transmission, to meeting the huge rise in ecommerce demand.
  • High freight costs and notable shipping challenges: In recent months, availability of freight services and containers has been low, while demand for ecommerce has been extremely high, putting pressure on international logistics operations. On top of that pressure, major events like the Suez Canal blockage have further slowed supply chains and driven up freight costs.

What’s next?

While this price rebound has been steep, the good news for category and commodity managers sourcing these resins is that this upward trend in prices isn’t set to continue for much longer.

With global supply chain constraints easing, production ramping back up to normal levels across the US and the rest of the world, and increased plant capacity in Asia helping to meet current demand levels, prices should soon begin to decline towards normal levels.    

Resins-Price-reach-record-high-level-in-H1-2021.

However, it’s important to note that even though prices should slowly decline over the remainder of 2021, we’re currently forecasting them to settle around their pre-pandemic values. Year on year, prices should not hit the same lows seen in 2020 thanks to strong packaging demand and pickup in manufacturing activity across the globe.

Preparing for the next major crisis

While the kinds of numbers seen over the last 18 months are certainly an anomaly – compared to historical price and demand trends at least – perhaps the most important lesson learned over that period is that a major crisis can hugely disrupt virtually any commodity market at any moment, without warning.

With that in mind, as we forecast for the future, it’s critically important that we examine the emerging and developing risks that we already have sight of, to assess their potential impact on resin markets.

Currently, there are four potential and emerging threats worth taking into consideration for the impact they could have on global resin supply and prices:

  • An active Atlantic hurricane season: Inclement weather continues across the Atlantic and North America, posing a threat to logistics around the region. As the big freeze of February has shown, these weather events are becoming more severe, and their potential impacts on production and logistics can’t be understated.
  • Bans and restrictions on virgin plastics: As the world shifts towards sustainability, pressure is growing for more companies to source recycled resins rather than virgin materials. Governments have been discussing potential legislation around this for a long time, and when actions start being taken, they’ll have a downward impact on global resin prices and demand levels.
  • Continued freight and container shortages: Freight shortages are becoming an alarmingly frequent issue around the world. If the situation continues to worsen, logistical constraints may impact product availability in resin markets, causing further delays to global supply chains, while driving logistics costs up.
  • The emergence of new COVID variants: It’s important to remember that the COVID-19 pandemic is far from over. We’ve already seen multiple highly-transmissible variants emerge around the world, and any one of these variants could easily cause a similar level of disruption as the initial outbreak if it spreads wide enough.

Be ready for whatever tomorrow brings with The Smart Cube

You can’t ever completely predict the future. But with reliable category, commodity, and market intelligence from diverse sources, translated into clear actions delivered straight to your team, you can get quite close.

Find out more about The Smart Cube’s Commodity Intelligence solution, and see how we can help you master the global resin market – or any other major commodity market – today.

If you would like to share any suggestions for future Commodity in Focus webinars, please email solutions.team@thesmartcube.com.

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