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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 24/11/2014 (21:06)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, in the PE market, Exxon and Nova have offered a $0.03/lb price reduction on all PE grades effective November 1st. North American suppliers are reluctantly addressing the global price points in an effort to maintain year-end profits. All other suppliers are expected to meet the $0.03/lb price reduction for November.

The primary driver RTi will focus on over the next several months will be the cost to produce a pellet in Southeast Asia in relationship to the selling price of the pellet in this region. Until a floor is realized and buying activity resumes, the total amount of the North American price decreases will not be determined. North American prices need to be within $0.10/lb of the SEA price to be globally competitive.

The SEA local delivered pellet cost is approximately $0.57/lb. The cash cost to produce ethylene from $670/mt naphtha is $0.42/lb plus $0.15/lb conversion and local freight.

The selling price for commodity grade PE ranges from $0.65/lb to $0.68/lb, and is facing significant downward pressure in SEA.

In a region of the world where PE suppliers historically maintained $0.02/lb margins, suppliers continue to reduce margin in an effort to create demand. How much margin the SEA suppliers give back will ultimately determine the bottom.

Middle East offers are $0.01/lb to $0.02/lb lower for December into SEA.

The outcome or message delivered from the OPEC’s November 27th meeting will be important to the direction and stability of oil prices and naphtha feedstock costs.

North American drivers will not determine the amount of future price decreases. - Inventories will improve with production improvement and severely reduced exports.

- Ethane and ethylene prices have decreased this week.

Ethylene cracker status: - CPChem restarted their Cedar Bayou plant. Not all furnaces are operational and only about four of their five million pounds of daily capacity are being produced. They have indicated they should be fully operational in December.
- The Williams Geismar unit has not experienced any recent delays.
- Formosa’s Point Comfort unit is down for a planned TAR (30 days).
- Exxon Baytown has restarted.

North American distributors and resin processors, all buyers of resin, are running down inventories and buying as needed to meet near term demand.

Off grade prices remain steady with tight inventories of several resins. Multiple car offers should be expected soon and should not be considered.

RTi Polyethylene Outlook and Suggested Action Strategies

30/60 Days: Prices will not increase in the next 90 days if oil remains under $80/bbl. Continue to pressure your supplier for lower prices due to the global downturn of PE prices and the eventual competitive discord between NA and every other region. Do not buy one more pellet than you need and delay, delay, delay; timing is on the processors’ side. Inventory management is critical in a down market. 90 Days: The Chinese New Year is the middle of February. If the resin floor is not determined by then, expect continued global market uncertainly until March 2015.

In the PP market, following the $0.05/lb drop in contract PGP for November, all indications point to another drop in price for December. How big of a drop is difficult to pin point just yet. Current data suggest another $0.04/lb to $0.05/lb is possible. It could be more if inventories grow at faster pace over the next couple weeks.

Spot RGP continues to move lower, but here have not been a lot of firm deals being done. During the past couple of days, bids have come in at $0.48/lb. The actual market is valued closer to $0.51/lb, but still signifies the downward direction of the market.

Spot PGP traded this week at $0.64/lb. Moving out into 2015, prices were lower with several trades conducted at $0.6375/lb. The current bids/offers for November spot PGP are at $0.63/$0.6475, with December being bid at $0.615/lb.

From a supply perspective, market conditions continue to improve for propylene. CPChem is in the process of restarting their Port Arthur cracker. The associated propylene splitters will boost supply in the near future. LBI’s metathesis unit is up and running. This is another big chunk of supply that was recently missing. We are also seeing a slightly heavier feed slate into the crackers with propane and butane competitive with ethane as feed. This will add some incremental supply.

In addition, the bulk of the refinery TAR season is over. Refinery rates are being reported at 91.2% (US) and 93.9% (PADD3).

All this return of supply is being reflected in the EIA propylene inventories which have increased from 2.183 to 2.997 million barrels over the past three weeks. This is a remarkable build in such a short time.

Also, cargoes of imported propylene have already started to arrive from other regions in the world. Sources tell us a few more cargos were initiated this week as well.

Propylene prices in the Far East region held steady this week at $0.515/lb to $0.525/lb. This leaves a wide gap to US prices of nearly $0.20/lb. The arbitrage to the US is wide open for additional pounds to flow this way unless prices here drop. US PGP prices have carried a premium to Far East prices of about $0.07/lb to $0.08/lb. If US supplies of propylene continue to build, there is plenty of room for prices to fall.

In addition to Exxon’s attempt to improve their margins by $0.02/lb this month, we have heard of LBI attempting to capture another penny of margin in November by only passing along $0.04/lb of the $0.05/lb PGP drop in November. As reported last week, demand has been surprisingly resilient given the high prices last month. Consequently, producers are feeling they have pricing power and appear willing to lose business if customers do not accept the increase.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: Buy as needed. Prices are on the decline. It is very likely that we see the lowest prices of the year once December PGP contracts settle. 60/90 Days: With oil prices dragging petrochemical prices lower and better supplies of propylene in the US, the potential for further price erosion beyond December is certainly there.

PVC demand remains improved over this time last year, but will see a stronger downturn from now to the end of the year due to the early arrival of winter. Still a 4.5% improvement in domestic demand through October.

Export markets have suffered due to a lack of resin in the first half of the year and now due to US pricing higher than PVC derived from cheaper oil. Exports through October are down more than 11% versus last year. Export pricing has fallen below $0.39/lb as demand in October fell 4%.

Domestic demand saw a 6% increase for October, offsetting the decline in exports, but with operating rates nearing 87%, there was a small inventory build.

A decrease in November of $0.02/lb to $0.03/lb is expected with more to come in December despite a brief escalation in ethylene spot pricing due to a very short Shell outage. It is back on line and with several other large units in restart (including Williams), ethylene supplies will be plentiful and lower priced through the end of the year.

Export demand for PE and PVC is expected to continue lower due to lower oil based ethylene feedstock costs overseas as Brent crude pricing moved below $80/bbl this week.

Inventories are 13% lower than a year ago having lost ground since the beginning of the year due to production outages in the first part of the year and stronger US growth and construction recovery.
Lower export pricing and demand, as well as a return to lower ethylene spot prices will return the September increase to the market first, followed by a return of some of the Q1 increases.

PVC export prices have fallen more than 5% since August as competitive levels overseas continue to fall.

PVC raw material costs in September peaked at a $0.015/lb premium to January. October fell $0.02/lb with another $0.02/lb decrease forecast for November taking raw material to the same level as a year ago before $0.11/lb of increases due to short PVC supplies and some ethylene escalations.

Spot ethylene prices this week overreacted to a fire at Shell’s Norco unit which occurred last week (unit has restarted already), by spiking up $0.04/lb to $0.56/lb. There were a few other producers who experienced some minor production issues (EMC Bayport/Beaumont; Dow Freeport, FHR and Ineos) which also may have contributed to the reaction. Formosa still has a unit down for a planned TAR, but CPChem and Williams are both in a restart phase on their units which should ease some of the tension. Spot prices are expected to ease in the coming weeks as supply improves.

Chlorine prices were stable again this week. Seasonal demand is decreasing, in addition to reduced costs in downstream products. Inventory levels are still healthy, and chlorine is not expected to be a factor in PVC prices in the short term.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Use improving domestic supplies, falling export prices and a rapidly falling feedstock market here and overseas to pressure producers for a removal of the September, plus a part of the March, increase. Operating rate discipline appears to be lacking as margins are up and producers want to grab sales that were missed earlier in the year when outages were rampant. Buy as needed, looking for August or better pricing. 60/90 Days: As ethylene supplies continue to improve and export PVC demand fades further during the slow season in the northern hemisphere, look for roll backs of at least $0.03/lb from Q1 2014. Buy as needed.

November PET contracts are heading lower, but the dollar amount will depend on the feedstock settlements. At this time, there is potential for roughly $0.04/lb to come out of the market.

The biggest factor driving PET prices, as well as demand, is crude oil. The drop in oil pricing to the lowest level in years has pushed the seasonally soft demand to even weaker levels. Oil prices have sustained long enough to hit the resin value chain in the US, and feedstock prices are projected to show a significant amount of that impact this month.

While the downside of oil prices is probably going to be limited, there is an OPEC meeting on November 27th that could drive the market going forward. There are two likely scenarios: − OPEC countries agree to cut production as oil prices have already dropped some 30%, and inventories continue to grow. This would probably propel prices back up and reverse resin prices early 2015.

− OPEC continues to operate at the status quo, trying to maintain market share. Several countries have shown no interest in cutting rates. There is already a certain expectation of this outcome factored into current oil prices as this has been discussed in the news for weeks now. This would certainly keep prices low until there is an uptick in crude demand, and also keep a pretty low cost floor under resin prices.

There has not been a settlement for paraxylene yet for November, and this might potentially get delayed until the end of the month. With the oil volatility and uncertain outlook, there is not big hurry in getting contracts locked in. At this point, PX could come down $0.05/lb to $0.07/lb based on spot market dynamics and the fact that oil prices have been under $85/bbl for over a month now.

The domestic PTA supply remains tight, and will remain so into 2015. November contracts are not yet settled, but will still move lower with PX.

Ethylene is lower all over the globe at this point, and should keep EG prices stable in the short term.
PET pricing in Asia has potentially hit a bottom. Brent oil prices dropped below $80/bbl, but are not projected to head much lower. PET in the region has reached the lowest level in years, and is now seeing a slight uptick based on a rebound in paraxylene prices.

Imports into the US from Asia still remain very competitive, and are available well under $0.70/lb. However, buying activity in the US in general has been kept relatively low given the feedstock and supply issues impacting the market.

PET production in Europe is strengthening. Combined with lower cost feedstocks, this has led to lower resin pricing so far this month.

M&G is still moving forward with their large PET plant in Corpus Christi, TX. They acquired a couple of key environmental permits this week. Startup is expected in 2016.

RTi PET Outlook and Suggested Action Strategies

30 Days: The most significant drop in PET prices is expected this month. Target pricing will be based on the PX and PTA settlements. Even if oil prices were to reverse course at the end of the month into December, the impact would not be felt until next year in resin. December is projected to remain flat from November at relatively low levels. Buy minimum requirements in this timeframe. There is no threat of higher pricing. 60/90 Days: Domestic PET prices are expected to close the year out with the lowest prices since 2010. January will probably be the right time to build inventory, assuming availability is not an issue at that time. Although prices may not see upward pressure until later in Q1, it seems that the downside potential will be limited in this period. Oil prices will continue to be the key driver.
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