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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 20/10/2014 (17:58)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, in the PE market, suppliers are facing a global cost challenge. Naphtha prices have fallen to the lowest levels since spring 2013 and oil fell below $84/bbl for the first time since the 2012 London Summer Olympics.

The tight resin market advantage of the past two years may change without the incremental volume outlet of the Latin American export market. It is a matter of time that inventories improve or suppliers severely discount export pricing.

Secondary market pricing remains firm and has changed little since August. Resin availability continues to be tight. Multiple car offers are still absent.

Feedstocks prices moved down this week. Ethylene is trading in the mid $0.60’s and should continue to improve as production issues are resolved. However, the Evangeline pipeline had a leak this week, and is expected to be down for at least 10 days. Ethylene inventories are still tight and any disruptions will again impact the spot pricing. Regardless, ethylene prices will not influence the polyethylene price, only the lack of ethylene would have an influence in PE pricing.

Export markets have shut down this week due to competing resins from other regions. NA offers for exports are being rejected due to price.

Latin America is now sourcing from SEA. Offers to this region are approximately $0.05/lb lower than NA offers. LLDPE and HDPE injection grades are in high demand.

RTi Polyethylene Outlook and Suggested Action Strategies

30/60/90 Days: Two market changes can be expected if the naphtha price remains at today’s levels. Both market changes will force the suppliers to respond to today’s domestic price level; imported finished goods will escalate (stretch film, can liners, and other commodity products) and the producers’ inventories will outpace demand. In order to continue to manage inventories, NA suppliers will have to sell resin almost 25% less than domestic prices. RTi will continue to monitor export activity. Without any chance of price increases, buyer should manage inventories.

In the PP market, the October PGP contract is close to settling at up $0.04/lb. Late yesterday, a few of the bigger players were coming around to accepting the $0.04/lb settlement. The expectation is that it will become official sometime today.

This will put October PGP contract prices at $0.765/lb. This will be the peak PGP price for YTD 2014. It is $0.02/lb higher than the previous peak of $0.745/lb (Jan) and $0.09/lb higher than the low of $0.675/lb (Jun/Jul).

Before the PGP contract even settled, signs of market weakness were already beginning to surface. It was clear from the beginning that there was no support for PGP prices in the low $0.80’s/lb, which is where RGP would suggest it should be. Spot prices were already starting to move this week, and we expect further downward movement to come.

Spot RGP was quickly offered late Thursday at $0.64/lb, soon after the PGP settlement was taking hold. By Friday morning, RGP was in fact transacted at $0.64/lb.

Spot PGP was recently transacted at $0.725/lb, which already implies a $0.015/lb lower PGP contract price for November. We think there is plenty of room for a larger drop by the time November contracts settle.

Propylene inventories reported by the EIA have dropped for ten straight weeks with current levels at 2.476 million barrels. This is the lowest level seen since the first half 2011 which was prior to the EIA adding a significant piece of storage to the survey data.

Refinery rates are down to 88.1% (US) and 88.9% (PADD3). We are well into the TAR season where rates tend to average in the mid to upper eighty percent levels.

Several monomer supply issues have plagued the market which has led to tightness and higher prices. We can report that two large FCC units in the Gulf have recently restarted. Shell Deer Park FCC is due to restart next week and Exxon Baytown the week after that. The FHR PDH unit was also in restart this week.

We can also confirm that roughly 70 million pounds of propylene has been booked to be imported into the Americas. With global propylene prices falling, the arbitrage remains wide open.

We also have an oil price that has dropped roughly $20/bbl since July. WTI was trading at $83.40/bbl at the time of this writing. Although propylene prices are predominantly influenced by supply and demand these days, an oil drop of this magnitude will move the window of where we can expect propylene to trade. Assuming oil remains discounted and propylene supplies return to balance, several propylene benchmarks indicate we could see prices drop by double digit amounts.

On the polypropylene front, producers have cut rates bringing production numbers down by 50 million pounds from August to September. Demand is also down and inventories have added about 105 million pounds over the last three months. We expect that higher monomer prices will cause further demand destruction in October and further rate cuts by producers in response.

Although PP inventories have added some length, the market is far from long. There have been some outages at Braskem and Exxon. Formosa is scheduled to take some partial downtime starting at the end of this month.

We have seen some converters delaying shipments into November and December trying to limit October buys, but we have also seen other converters in need of resin and willing to buy at October prices.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: Buy only as needed. October will end up being the peak with the potential for significantly lower prices in the coming month. 60/90 Days: Market dynamics should be balanced much better during this timeframe. There are many factors to watch including global economies, energy prices, and domestic demand trends.

In the PVC market, expectations for improved ethylene supplies forced spot ethylene down $0.05/lb this week as export demand for both PVC and PE were expected to suffer from lower oil based ethylene feedstock costs overseas.

Producers matched operating rates with demand down roughly 5% both domestically and export in September and are expected to try to do more of the same in October. Days of supply remained flat.

A temporary shutdown of the Evangeline pipeline to repair a leak will restrict some ethylene deliveries to PVC operations in Louisiana, but the long anticipated re-start of the Williams cracker in LA would more than offset.

After rising $0.05/lb across Aug/Sep, contract ethylene is expected lower throughout Q4 as supplies improve and demand is reduced due to seasonal slowness and reduced export demand. The stronger US$ does not help affordability of US resin.

Lower export pricing and demand, as well as a return to lower ethylene spot prices will erode the September increase and has the potential to return some of the Q1 increases.

Domestic demand will suffer as buyers look for lower prices, buying only as needed.

PVC export prices fell by more than 4% in September as prices overseas have moved lower along with oil (as the primary feedstock for ethylene in export markets) and ample supplies. Prices have been steady in October so far.

PVC operating rates fell by nearly 5% in September yielding a 2% inventory draw as producers were cautious about matching demand with production in light of high ethylene costs. Supplies remained ample as domestic demand fell in September by 5% and exports fell 5%.

PVC raw material costs in September are forecast to peak at a $0.015/lb premium to January followed by a $0.01/lb to $0.02/lb reduction in October and more decreases for the remainder of the quarter as ethylene inventories recover from supply constraints.

Contract ethylene prices for October have not firmed; there have not been any nomination discussions. September contract prices are $0.545/lb. Spot prices have remained below $0.70/lb this week ($0.65/lb). There are still shutdowns which have kept the spot prices elevated. Several of these are projected to be back up around early November. The Williams Geismar unit is still on target for commercial product availability in November. There are also new reports that CPChem may restart
sooner than expected, possibly in the November timeframe. The Evangeline pipe line had a leak this week and is expected to be down for at least ten days.

There was limited activity in the chlorine market again this week. Downstream activity has been stable, and there is little reason for price moves at this point.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Well-balanced domestic supplies and a rapidly falling feedstock market here and overseas are a strong predictor of lower spot PVC to be followed by a return of the September increase. Buy as needed, looking for August pricing. 60/90 Days: As ethylene supplies continue to improve and seasonal/export PVC demand fades further, look for even lower pricing, giving back some of the Q1 increases.

October PET contracts remain unsettled, but are projected down again this month.

The main driver supporting a decrease in resin contracts is the sharp declines in feedstock costs. Some of the highlights include:

Oil: WTI is down nearly $12/bbl since the end of September, even dipping below $80/bbl. Brent crude oil has reached four-year lows.

PX: Spot prices in the US are down $0.07/lb this month, which will contribute to a reduction in contracts and ultimately PET prices.

PTA: In Asia, prices were down $0.03/lb just yesterday. Buyers are staying out of the market, and this is leading to even lower export pricing to the US.

EG: Production costs are moving lower in all naphtha based regions. Naphtha pricing is down nearly 18% since September.

There has not been any production news on BP’s PTA line, which is still expected to resume by early November. It will not be fully operational at that time, but it should be able to satisfy the requirements of the market. Until then, the imports should get the job done. Full capacity will not likely be reached until 2015.

Overall production costs on the month are expected to be down as much as $0.03/lb. However, official PX settlements have not been heard at this time.

Demand has been average, and buyers can turn to imports from Asia. Current imported material can be delivered at ~$0.70/lb.

PET pricing in Europe is starting to edge lower. Current demand levels are being outpaced by supply, especially with new capacity coming online and the winter offseason approaching. PX settlements so far this month have been flat to down. Recent developments in the energy markets will add even further pressure for reductions.

During the next couple of months, the cost to produce PET in the US will likely see more declines. Based on the potential for even lower PX prices and softer demand, as much as $0.05/lb could come out of the market by the end of the year.

RTi PET Outlook and Suggested Action Strategies

30 Days: Imported material and weakening costs for PET producers should move the domestic market lower this month. The amount will depend largely on the PX settlement, which could be in the neighborhood of a $0.04/lb decrease. At this time, as much as $0.03/lb could come off of PET. 60/90 Days: The only thing that looks like it could cause a price increase in the next few months is if BP cannot get their PTA line operational. Assuming it starts smoothly and promptly, PET decreases of as much as $0.05/lb are projected to close out the year.
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