Weekly Market Drivers for the USA
Suppliers have not announced the December price decrease for North America.
Cost to produce a PE pellet from naphtha in Asia is now in the low $0.50’s/lb.
The selling price for commodity PE in Asia is in the mid-$.50’s/lb.
Cost to produce a PE pellets from ethane in North America is now below $0.25/lb.
December deliveries into Latin America from the Middle East for LLDPE butene are below $0.70/lb. January deliveries are expected to be $0.05/lb lower.
Secondary and off grade market prices have declined over $0.10/lb in some markets since October, and the price will continue to decrease.
November inventories improved to the highest level in years.
Feedstock decreases improved resin supplier margin in November by $0.02/lb.
RTi Polyethylene Outlook and Suggested Action Strategies
30/60 Days: Without any price increase pressure, carefully review any “year-end specials”. Prices will not increase in the next 90 days if oil remains under $70/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 uncertainty until March 2015.
In the PP market, contract PGP prices settled down $0.10/lb, putting the contract PGP price at $0.615/lb. This will end up being the 2014 yearly low. At $0.615/lb, it is $0.06/lb lower than the year’s previous bottom of $0.675/lb (June & July).
Even after dropping $0.15/lb over the past two months, US PGP prices remain overpriced relative to just about any propylene benchmark you stack it against.
Of course, the main driver behind propylene’s current state is the fact that oil prices have completely unraveled. WTI was valued this morning in near $58/bbl. This $40/bbl lower than where WTI was trading in the Feb-Jul timeframe.
Spot RGP is being valued at about $0.42/lb, based on the latest bids and offers. Considering an average RG-PG spread of $0.10/lb, PGP is at a $0.095/lb premium. PGP prices FOB Korea were recently valued at $0.335/lb. That leaves a spread of $0.28/lb to US PGP. The average premium of US PGP to FOB Korea prices is $0.07/lb to $0.08/lb, suggesting US prices are still $0.20/lb too high. Any benchmark you can look at will tell a similar story whether it be oil prices, gasoline prices, alkylation values, derivative economics, and arbitrage economics.
The only threat to the US propylene market would be a major supply disruption. At the moment, however, propylene supply is looking very optimistic. − Propane and butane are favored over ethane at the steam cracker.
− Metathesis economics are favorable.
− Refineries are running at their highest rates of the year with PADD3 rates at 97.4%.
− Steam crackers are running at high rates.
− The arbitrage from the Far East remains wide open leaving room for further imports.
Barring a major supply event, PGP prices will see another significant drop in January. Another $0.05/lb to $0.10/lb is a reasonable projection at the moment.
On the polypropylene front, much of the conversation revolves around limited availability and a general sense of tightness. It was interesting to see the preliminary ACC numbers this week which were not correlating well with the prevailing tight market sentiment.
Demand was down 65 million pounds from October to November and inventories grew by 66 million pounds. According to the ACC data, PP inventory levels are at their highest level in 19 months.
In any event, availability has been limited. We also expect demand to be stronger in December and January due to the lower price levels.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: Buy as needed. Prices are as low as they have been all year. With availability difficult for many, the motivation shifts from price to supply. From that perspective, buy now if needed, but prices will be lower next month. 60/90 Days: There is potential for significant price erosion over the next couple months. It is not yet clear where the next market bottom will be, but we will likely see it sometime later in Q1 2015.
PVC appears to be settling down $0.03/lb for November as ethylene contract settled substantially lower in November, with spot leading the way for a similar decrease in December.
Domestic demand for November was down by 18% as production fell 5% leading to a 23% inventory build to a 2% increase over last year. This is the first time inventories have been higher in 2014 since June.
PVC total demand and production is down 2% YTD. Exports are down 10% and domestic demand is up 3% YTD.
US export PVC pricing is chasing lower priced PVC overseas derived from cheaper oil taking export pricing below $0.36/lb.
PVC operating rates fell 4.5% to just under 83%, as maintenance outages in Q1 are planned.
PVC raw material costs in September peaked at a $0.015/lb premium to January. October fell $0.02/lb, November down $0.035/lb from the sharp drop in ethylene as well as a contribution from chlorine. December costs are expected down $0.02/lb to $0.03/lb.
Feedstock reductions of $0.07/lb to $0.08/lb in Q4 to levels not seen in more than two years are well below costs before $0.11/lb of increases were seen in 2014 due to short PVC supplies and ethylene escalations.
Spot ethylene prices have tumbled over the last ten days, shedding $0.10/lb. 2013 was the last time spot prices were near this price point. Weak PE demand, no unplanned outages, completed planned TAR’s and the restart of both the Williams Geismar and CPChem units have improved ethylene supply position.
Downstream reductions in both PVC demand and production have contributed to lower chlorine prices so far in December. Prices are down roughly 18%.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Use improving domestic supplies, higher inventories, falling export prices and a rapidly falling feedstock market here and overseas to pressure producers for a reduction of at least $0.03/lb in December. Operating rate discipline is appearing, along with Q1, to offset export reductions. Buy as needed until we see the January decrease kick-in. 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 more of the Q1 2014 increases. Buy as needed in December with good order planning for January as some restocking demand is expected.
November PET contracts settled down $0.06/lb, on average, as feedstocks moved lower. Demand has also softened given the direction of the market, and time of the year.
PET contracts for December are projected to settle down even further as spot paraxylene prices continue to plummet to the lowest levels since 2009.
WTI oil prices have now moved below $60/bbl, which is still quite a bit higher than during the financial crash when it reached the mid-$30s/bbl. While this severity of this movement was brought on by OPEC’s decision not to cut production targets, oil prices were already in decline for months prior. This has certainly contributed to a buyer’s market.
PET resin in Asia is continuing to plummet as well. Local pricing is down below $0.50/lb, which allows for exports to the US at attractive prices. Imported material is available in the low $0.60s/lb. Even at these levels, demand is still not making an appearance. Buyers are holding out for the bottom, which does not appear to have been reached.
The cost to produce resin in the US was down a little more than $0.06/lb for November. Given the tight PTA market conditions, some buyers did not get the broader raw material cost decreases passed through to resin. December costs should be down a minimum of $0.02/lb.
As previously mentioned, PX spot prices are continuing lower. This is leading to expectations of December contract settlements to drop even further. November contracts settled at a $0.095/lb decrease at $0.52/lb.
Overall, PTA pricing will move lower with PX. Although there is tightness in supply, soft demand will keep it from becoming a more serious issue this month. It could become a bigger factor in January if there is a significant increase in demand to start the year.
RTi PET Outlook and Suggested Action Strategies
30 Days: More declines are projected for December. Target pricing will be based on the PX and PTA settlements. At least $0.02/lb is likely to come out of the market. As of today, oil is moving even lower, which will keep pricing down into 2015. 60/90 Days: January will probably be the right time to rebuild 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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