Weekly Market Drivers for the USA
RTi believes it is reasonable to expect an additional $0.07/lb in Q1 2015 to meet global price benchmarks as long as oil remains below $65/bbl and feedstocks are at current levels.
Secondary market prices continued downward this week. Multiple car offers of all resins ranged from $0.63/lb to $0.70/lb, down from an $0.80/lb range in August.
Ethylene and ethane continue their steady downward move. Spot ethylene traded below $0.40/lb for the first time since October 2010.
Cumulative PE inventory is now at the highest level in at least five years.
November exports were down 120 million pounds below thee three year export average. 510 million pounds of polyethylene were exported last month, compared to the monthly average over the past few years of 630 million pounds. This is a reflection of North America’s lack of response to new lower global price benchmarks.
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 for December was settled earlier this month down $0.10/lb to $0.615/lb.
This is down $0.15/lb from the 2014 high (Oct) of $0.765/lb. The December contract price of $0.615/lb will be the 2014 low point. The previous low was $0.675/lb in June and July.
2015 will start the year at even lower prices. We are expecting another significant price decrease when the January contract price gets settled.
The latest spot PGP trade that we have seen was for January at $0.535/lb. This was followed with bids at $0.52/lb (Jan). December PGP was being offered at $0.53/lb.
Spot RGP was last traded at $0.365/lb with bids following at $0.355/lb. At $0.365/lb the spread between RGP and contract PGP is huge at $0.25/lb.
Another interesting benchmark is that PGP prices FOB Korea are down to $0.245/lb. That is a $0.37/lb discount to US contract PGP. The arbitrage for importing propylene to North America remains wide open. We are hearing that a couple new cargoes of propylene have been booked out of Asia and heading west. We do not know exactly where they are headed. Soft demand trends and new propylene capacity in the Far East are making the propylene market in that region extremely bearish.
Supply of propylene in the US looks good. Refineries continue to run strong at 93.5% (US) and 95.3% (PADD3). At the steam cracker both propane and butane are favored over ethane cracking. We have also confirmed that both propane and butane percentages into the cracker are up. This leads to better yields of propylene and is good for supply.
Propylene inventories reported by the EIA continue to build with levels being reported at 3.27MM/bbl. All-in-all propylene prices are poised to drop further in the coming months.
The polypropylene market continues to be portrayed as tight. Availability appears to still be limited, although we have seen a few more cars of resin being offered into the market.
Recent ACC data shows that polypropylene inventories were at a 19-month high heading into December. Where that inventory is exactly remains a bit of a mystery.
PP demand overall is decent. We expect January to be a strong month with a lot of buyers planning to restock at much lower prices. We would caution that January may not be the ultimate market bottom.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: Buy as needed. Prices for both monomer and polymer have plenty of room to come off with another sizable drop coming for January. 60/90 Days: Monomer supply looks good into Q1. Unplanned outages could become a factor if winter takes a toll. We also need to monitor the global oil markets and watch for shifting trends.
PVC is expected down $0.05-0.06/lb across Nov/Dec as ethylene contract settled substantially lower in November with spot leading the way for a similar decrease in December with a $0.10/lb decrease in spot ethylene since the beginning of the month.
The Evangeline pipeline has reopened, relaxing oversupply in Texas and getting supplies into Louisiana where major PVC production is sited.
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.
Private housing starts remained above the 1MM annual adjusted level in November after achieving that mark in September. Builder confidence is increasing.
US export PVC pricing is chasing lower priced PVC overseas derived from cheaper oil taking export pricing down nearly $0.05/lb over the past month below $0.34/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 $0.02-0.03/lb.
Feedstock reductions of $0.07-0.08/lb in Q4 to levels not seen in more than 2 years are well below costs before $0.11/lb of increases were seen in 2014 due to short PVC supplies and ethylene escalations.
The spot ethylene market has had a dramatic reversal from September when prices hit $0.76/lb. Current spot prices are ~$0.38/lb that is almost a $0.40/lb reduction. The price erosion is attributed to soft downstream demand and a better supply position.
Chlorine prices were stable this week in a very quiet market. This is expected to continue into 2015.
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 “maintenance” 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.
December PET contracts are not settled yet, but will be down for the consecutive month in a row.
Based on the current feedstock positions, raw material costs in December could be down $0.04/lb or more. This would likely be completely passed through this month to buyers.
The sharp decreases in the markets are keeping buyers cautious. There will not likely be heavy purchasing activity until well into January, if even then. Much of this will depend on oil, and where prices stabilize. At this time, WTI crude oil is trading near $56/bbl.
Paraxylene contracts remain unsettled for December, which will be critical to the movement in PET.
Spot PX prices have been tracking oil lower for the past few months, and are down roughly $0.09/lb month-to-date.
Imported PET prices are continuing even lower based on the falling market in Asia. Spot resin in China is essentially selling at lower prices than the latest (November) PTA contracts in the US.
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.
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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