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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 10/11/2014 (16:05)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, in the PE market, prices settled flat in October, conceivably ending twenty-nine months of upward resin price pressures.

The unexpected drop in oil and naphtha price quickly changed the polyethylene market dynamics. The drop in oil prices had an immediate impact on the export market. Latin America turned to Korea to meet resin needs at a significantly lower price. This shift will ultimately improve the NA supplier inventory if suppliers refuse to meet new price levels.

There are no legitimate price increases pending and the chance for price increases for the balance of 2014 and early 2015 are tremendously remote.

Regardless of tight resin supplies, NA suppliers will need to address the global price that is set by the price of oil and make downward adjustments.

Export offers to Latin America declined $0.07/lb for LLDPE. More decreases will have to occur if NA wants to participate in the LA market.

Two market changes can be expected if the naphtha price remains at today’s levels. Imported finished goods will escalate (stretch film, can liners, and other commodity products) and the producers’ inventories will outpace demand. Both market changes will force the suppliers to respond to today’s domestic price level.

North American suppliers have two choices:
 Proactive - gradually decrease prices regardless of current tight inventories. This is not likely due to the year-end incentives for seller and product managers. 2014 has been a good year for suppliers and processors should not expect a proactive price reduction.
 Reactive - wait until inventories grow without an export market, supply outpaces demand, and sales are lost to Asia manufacturing.

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.

Feedstocks

Ethane: Prices have been mostly stable for the past three months, continuing to trade in the general $0.22/gal to $0.24/gal range in October. Cost to produce ethylene is still near $0.10/lb.

Ethylene: Contract ethylene prices settled down $0.04/lb for October at $0.5050/lb. Spot pricing has been trending lower with recent November deals at $0.52/lb. Forward bids and offers are in a similar range.

With the exception of natural gas and ethane, which remained flat for October, every global feedstock related to polyethylene tumbled in October. Since September 30th the following decreases transpired:
 Ethylene fell $0.15/lb
 Oil fell $17/bbl
 Naphtha fell $120/mt

Ethylene maintenance schedule and restart dates recap:
 Formosa Point Comfort Restarting EOM
 ExxonMobil Baytown Restarted
 Eastman Longview Restarting
 Williams November Restart
 CPChem Cedar Bayou January 2015 target restart
 Dow St Charles Delayed from October to March 2015
 Evangeline Pipeline No restart schedule announced

Secondary Market

Secondary market pricing realized minimal increases in September. Most off grade and generic prime prices increased $0.03/lb in August, ahead of the September market. Several buyers report some improvement in availability; however buyers stress the importance of longer lead times to confirm availability. Quality LLDPE butene and HDPE injection grades resins are still recovering.

Inventory

Final inventory data for September shows a 35 million pound inventory gain (HDPE +5; LDPE +8; LLDPE +22). This is the second build in a row, bringing inventory up above average.

(October preliminary data has not yet been released, but should be out within the next week)

Total PE sales volumes were down 1%, but still at a healthy level. Production was also down overall, keeping the inventories mostly balanced.

HDPE demand at 91% of production capacity. This is right at the YTD average. There were 29 days of inventory heading into October, which is flat from the prior month.

LLDPE operating rates were strong in September at 98% of capacity. This led to the 30 million pound inventory gain, despite being the strongest demand month since January.

There were 30 days of inventory, which is below average.

LDPE production and sales were both down slightly in September. Inventories were virtually flat, with 39 days available. Exports were up, representing 23% of production.

RTi Polyethylene Outlook and Suggested Action Strategies

30/60/90 Days: Without any chance of price increases, buyers should manage inventories. Processors should begin informed discussions regarding the high price disadvantage North American has now. Do not buy a pellet that you will not be converting and shipping in the near future.

In the PP market, October PGP contract prices settled at $0.765/lb. November has nominations for PGP to move down $0.02/lb to $0.025/lb.

As of Friday afternoon, the November PGP settlement was getting talked at down $0.05/lb. Should this become market wide, it would put PGP contract prices at $0.715/lb.

Producers are working to match PP supply with the soft demand trends of October to prevent any buildup of expensive inventory.

2015 contract renewal discussions are well under way. Producers are likely to achieve some level of margin expansion across the broader PP market heading into 2015.

A report this week is saying that FHR will close their Marysville, MI PP plant in 2015. This unit is relatively small at roughly 190 million pounds of capacity. It is roughly 1% of the market.

Enterprise has announced a Force Majeure on propylene. Enterprise has had two propylene splitters down recently, one planned and one unplanned. The real issue is with one of their salt dome storage facilities and its ability to transfer propylene. Our sources tell us that this issue should be fixed over the next week. It is not expected to have a material impact on the market.

In fact, propylene monomer is in the process of a price correction that could bring prices down well into the 60 cent range over the next several months. The Enterprise FM has not changed the overall bearish sentiment that is currently in place.

Secondary Market

The secondary is seeing a little better activity, mostly as a result of lower prices becoming available. We are not seeing a flood of material hitting the secondary markets due to softer demand in October. We suspect that producers have responded quickly to slower demand by cutting rates. There does not appear to be any desperation by producers to move pounds at this point.

However, we are seeing some pretty steep discounting from certain resellers who seem to want to liquidate any inventory prior to the coming price decreases expected in PGP.

The range of prices in the spot markets is wide. Fresh prime cars continue to be offered in the upper 80 cent range. Generic, wide-spec, and other down-graded materials are filling in the spectrum of prices all the way down into the mid-70 cent range.

It has been very difficult to find willing buyers at the upper end of the range. Buyers are looking for price points equal to or better than what they expect their November and December contract prices will be.

Supply/Demand

PP production for September was down from August by 60 million pounds, putting industry operating rates at 88.1% for the month. We are anticipating further declines in production for October.

PP demand for September was steady with August at 1.384 billion pounds. This is slightly above the
2014 average of 1.37 billion pounds.

Inventories were down by 28 million pounds with days of supply at 31.7 days heading into November.

October numbers should be available within a couple days. We are expecting both demand and production to be soft with prices at a yearly high.

Total demand for the year has moved into positive with a growth rate of 0.34%. This may dip back into negative territory with October numbers, but we expect the year to close on a positive note.

Feedstocks

PGP: October PGP was settled at a yearly high of $0.765/lb. November contracts were being talked at down $0.05/lb, but were not market wide. Supply has returned and inventories are increasing. LBI metathesis is running. Propane and butane are making it into the cracker feed slate. Propylene imports are arriving. The US PGP market is bearish and prices should see a big correction over the next couple months. Spot PGP was offered at $0.675/lb.

RGP: Spot RGP is lacking transactions. Current values for RGP are at $0.565/lb to $0.57/lb, down about $0.185/lb from the peak. The RGPG spread is wide and would support further decreases in PGP. EIA inventories grew and should continue to grow in coming weeks. Refinery rates are also up.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: US PP prices will see downward movement for November. It is likely that propylene prices continue to move down into December and possibly January. Buy as needed through November. 60/90 Days: Current indicators point to stronger supplies of propylene monomer. Lower propylene prices in other regions suggest a significant correction in US prices is coming. Whether the next market bottom hits in December or further out is still difficult to determine.

In the PVC market, ethylene supplies are improving first in Texas as the Evangeline pipeline is again down. Contract pricing is settling down $0.04/lb for October with more to come in November.

PVC demand is seeing seasonal declines and is moving below $0.040/lb on the export markets looking for demand as overseas PVC pricing has fallen along with ethylene and oil.

Outlook for a decrease in November of $0.02/lb to $0.03/lb is looking promising with more to come out in December given a good start-up of the Williams cracker this month to help supply PVC plants in LA.

Spot ethylene is down $0.11+/lb in October leading to lower ethylene contract pricing and pressure to reverse the $0.02/lb September PVC price increase at the very least.

Export demand for PE and PVC is expected to continue lower due to lower oil based ethylene feedstock costs overseas, lending additional downward pressure to domestic ethylene pricing.

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

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 first, followed by a return of some of the Q1 increases late in Q4 or into Q1 2015.

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

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 peaked at a $0.015/lb premium to January to be followed by a forecasted $0.02/lb reduction in October and another $0.01/lb to $0.02/lb in November taking raw material cost $0.015/lb to $0.025/lb below August.

Ethylene: The ethylene supply position has improved, as reflected in the decreasing prices. October contract prices are down $0.04/lb ($0.505/lb) with spot prices currently in the mid $0.50/lb range. Spot prices are down ~$0.07/lb from the previous month. CPChem’s cracker remains down. The Williams unit is slated for a November start up. The Evangeline Pipeline is still down. The damage is greater than originally thought. There is currently no timetable for it to comeback online. This could push ethylene prices on the Louisiana side higher.

Chlorine: Spot prices have been mostly stable since June. Seasonal demand decreases have led to a small reduction in spot pricing in recent weeks. Inventory levels are healthy. This is not likely to be a big factor in PVC prices in the short term.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Improving domestic supplies and a rapidly falling feedstock market here and overseas are strong predictors of lower spot PVC to be followed by a roll-back of the September increase. Buy as needed, looking for August or better pricing. 60/90 Days: As ethylene supplies continue to improve and seasonal/export PVC demand fades further, look for roll backs of at least $0.03/lb from Q1 2014. Buy as needed.

October PET contract prices have been more mixed than usual, given the current market conditions. Prices ranged from as low as a penny to roughly $0.03/lb.

WTI crude oil prices have declined to under $80/bbl. While PET does not follow oil on an exact basis, the components are largely oil driven. This has created further downward pressure into an already
fairly weak global PET market.

PET is typically cost driven. However, there are still lingering supply issues from the PTA line outages at BP’s Cooper River plant. While one line has restarted, the other is still running at low rates. This tightness in the market is leading to higher production costs as PTA is having to be imported to keep PET operations going.

Imported resin is still being offered very cheap from Asia, where reductions in cost seem to be passed into the market quicker. This will help alleviate issues in the domestic market and keep prices from really increasing.

Even though there are PTA production issues, low cost and well supplied PX is still available. Overall cost to produce PET is still down $0.03/lb in October, and could be down as much as $0.05/lb in November.

The additional PET capacity in Europe is not having a strong impact yet. A weakening Euro is also making imported material less attractive, adding to further competition in their domestic markets. Prices are still moving lower on cheaper energy.

If all planned PET plants were somehow built in the next four to five years, the world would see an increase of about a third of its capacity. Much of it in China, the US, and India.

Feedstocks

PX: The combination of reduced oil pricing and limited PTA production has resulted in a surplus of paraxylene. Contracts settled down $0.03/lb at $0.615/lb in the US for October, but another decrease is already projected to make its way into the market in November based on the near $0.08/lb declines in the spot market in Asia and the US.

PTA: US October contracts settled down roughly $0.02/lb at $0.5434/lb, despite the ongoing supply issues. Limited output is expected to continue into 2015 from BP, and has created a need to import material to fulfill PET needs. The market in Asia remains well supplied, and prices are moving lower at a faster rate.

EG: With the considerable reduction in upstream oil costs, ethylene glycol pricing is starting to see some reasonable declines. US producers are moving prices lower by roughly $0.05/lb in November based partly on cheaper prices in Asia, which factors into some pricing formulas.

RTi PET Outlook and Suggested Action Strategies

30 Days: Further declines are projected in November. Overall feedstock costs will be heading lower, but the extent of the PTA and domestically produced PET tightness might keep the reductions lower than the total cost moves. Regardless, buy as needed. Low oil will keep downward pressure on the market. 60/90 Days: Lower pricing is still likely as the year comes to a close. Typically increase pressure is around to start the year, but this will depend mainly on supply and energy markets.
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