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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 30/01/2017 (16:49)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, the final week of Jan was very sluggish. The PE market has the impression of a wait-and-see attitude to the Feb increase. Apart from lower inventories due to record Dec exports, the market has no other solid drivers to support an increase in Feb.

Market Overview

LBI announced a $0.06/lb price increase for Mar 1st. This action was expected; it is a common industry routine to attempt to overlook the Feb increase.

Prime suppliers are certain they can achieve the Feb increase and most likely will not break ranks to achieve their success.

Off-grade PE is selling above the prime price for most commodity grades, driven by lower availability.
Asia will be shut down for the next two weeks, limiting North American exports to this region.

The Exxon Baytown refinery had a compressor failure which caused an unplanned shutdown on the olefins and polymer units, lasting 10-14 days.

Oil prices remain in the low $50/bbl’s despite the talks of reduced production, keeping global markets cautious.

Feedstocks

Spot Ethylene: Spot ethylene prices spiked to $0.36/lb early this week due to three ethylene cracker planned outages and PE units running at full production.

Naphtha: The price remained near $510/mt. Prices stayed flat after five weeks of increases. The cost to make a pellet from naphtha is near $0.50/lb in 2017.

RTi PE Outlook and Suggested Action Strategies

30 Days: Similar to last week: suppliers are very bullish that they will achieve the Feb increase. The price increase will not be settled until late Feb. Oil prices and the strength of the export market will be key factors. Buyers should manage inventory with the expectation of a price increase. 60/90 Days: The strength of oil prices and supplier determination to raise prices in Feb need to be settled before 60-90 day expectations can be discussed. However, in the long term, higher oil prices would support higher global prices.

In the PP market, PGP settles up $0.10lb to $0.415/lb.

Market Overview

After a couple of weeks of rampant speculation, PGP finally settles at its original nomination of up $0.10/lb. This is the largest monthly increase since January 2013 when PGP increased $0.15/lb.

Polypropylene prices will move up by $0.10/lb, in line with PGP. Industry indices have indicated they will also move with the monomer increase.

These market moves are a response to supply issues in propylene markets. Higher prices will begin to counteract these issues by attracting supply.

We also expect to see a good amount of demand destruction in response to these higher prices. Export ARBs are closed, and we are seeing domestic PP buyers pulling away from the market. Some are inquiring into import options.

Propylene

Spot PGP has stabilized over the past few days and activity has slowed. Current value is $0.4825/lb.

Spot RGP is valued at $0.3725/lb. Based on current spot values, the implied contract price for Feb is roughly $0.505/lb, which would be another tough hit to the market.

EIA propylene inventories dropped from 4.22 million to 4.12 million barrels.

Refinery operating rates dropped from 90.7% to 88.3%.

RTi PP Outlook and Suggested Action Strategies

30 Days: Polypropylene contract prices will move higher in Jan by $0.10/lb. 60/90 Days: Expectations are for another increase in Feb. We see the market peaking at this time with a downward correction following in Mar or Apr.

In the PVC market, ethylene climbed by more than $0.04/lb and ethane fell by more than $0.04/gal, leading to expectations for a higher ethylene contract settlement.

Market Overview

Partial implementation of the $0.04/lb Feb PVC nomination is considered likely as ethylene continues higher in spot markets due to outages leading to an excess of ethane and lower spot ethane prices.
Implementation of the remainder of the increase will be dependent on supply constraints from planned outages and demand ahead of the construction season.

There is an increase nomination of $0.03/lb for March designed to reinforce the February increase and position for market tightness, should demand show more strength than expected.

Exports will continue to play a role in supporting price and demand. China is a bigger potential buyer as coal-based technologies are subject to increasing regulation and cost.

Supply & Demand

Supply: Supply will see a reduction in coming weeks (drawing off inventories built in Dec) due to planned maintenance that will ultimately yield some capacity expansion in Q2.

Demand: Winter weather will continue to dampen short-term domestic demand as the export market relaxes during the Lunar New Year period.

Feedstocks

Chlorine: Two vinyl chloride monomer facilities from OxyVinyl experienced production issues this week, slowing demand for upstream chlorine and dropping pricing by roughly $5/st.

Ethylene: The Dec CP settled up ~$0.02/lb ($0.3225/lb). The Jan CP has not firmed, but spot prices are averaging ~$0.06/lb higher than Dec prices. This upward trend can be attributed to several crackers which have planned TAR’s slated for Q1/Q2.

RTi PVC Outlook and Suggested Action Strategies

30 Days: A balanced market, under some feedstock pressure from ethylene, will likely see a partial implementation of the Feb nomination, suggesting a strategy of stocking up at Jan prices to get through the next 60 days. 60/90 Days: Increasing ethylene supplies at the end of this period, as some maintenance is concluded, will ease feedstock pressure as PVC demand increases in preparation for the construction season. Expect efforts to implement whatever remains of the Feb nomination.

In the PET market, both DAK Americas and Indorama nominated Feb PET up $0.03/lb.

Market Overview

Pre-buying ahead of the summer bottling season pushed demand higher. Operating rates were seen in the low to mid 80%’s, with an expectation for improvement heading into Q2. Firmer demand and mediocre operating rates are lifting PET prices from a market standpoint.

Raw material costs are moving higher (+$0.03/lb from Dec to Jan) with the rising contract settlements for PX/PTA and (potentially) MEG.

Asian PET pricing also saw price climbs throughout Jan, increasing upward pressure for NA PET.
WTI crude oil prices have been somewhat stable once again this week, this time roughly $1-2/bbl higher on average, currently near $53/bbl. Refinery rates dipped to 88.3%. Feedstocks

PX: Production outages for upstream mixed xylenes (MX) have been limiting supplies and boosting spot prices: forward outlook is bullish. Gasoline prices are expected to rise this spring, which would put upward pressure on both MX and PX.

PTA: The January PX and PTA contracts settled at their initial levels: +$0.0175/lb and +$0.0127/lb respectively. Despite a minor uptick in demand, market fundamentals are nearly balanced.

MEG: MEG demand in China slowed down ahead of the Lunar New Year, effectively halting the price increases seen in the Chinese MEG spot market. A $0.02-0.03/lb increase was heard for US MEG contracts for Feb. International

PET Outlook and Suggested Action Strategies

30 Days: Bullish market dynamics, as well as rising PET feedstocks, should solidify increases for both January and February. Continue to buy sooner rather than later to minimize the impacts of the pending price ascent. 60/90 Days: The MEG markets, both domestic and in Asia, are the forefront driver of PET prices at the moment. If MEG starts to ease, we can expect PET to follow. Monitor both the supply and demand balance for MEG as well as the crude oil prices to help determine the forward PET price direction.
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