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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 12/01/2015 (17:40)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, in the PE market, the price of oil will be the market driver for the global price of polyethylene more than any other driver or data. The direction and volatility will continue to shape and influence the resin markets.

As of today, RTi can confirm at least one major supplier down $0.04/lb in January.

Prime polyethylene prices decreased $0.04/lb in December for a total of $0.07/lb since November 1st.

PE prices can expect at least another $0.07/lb in the first quarter of 2015.

January secondary markets realized decreases ranging from $0.10/lb to $0.15/lb. Off grade LLDPE butene and HDPE injection sold at, or below, $0.65/lb and HDPE pipe grades sold below $0.60/lb.

PE resin availability is at a three year high.

Spot ethylene is trading below $0.40/lb. Ethylene inventories are healthy and the number of scheduled Q1 turnarounds is the lowest in three years. Cost to make ethylene is near $0.10/lb. Cost to make polyethylene is below $0.30/lb.

Chinese and Southeast Asia prices continued to fall to the mid-$0.50’s or lower. The volatile price of oil and weak demand have kept buyers from committing to any volume. Buyers may stay inactive until the end of February, marking the end of the Chinese New Year celebration that begins February 15th.

Naphtha prices are now below $450/mt. Cost to make ethylene is in the high $0.30’s/lb. Cost to produce pellets is below $0.50/lb.

Latin American markets continue to source from Korea in the mid-$0.50’s (BRC equivalent). Export to this region from NA remains minimal due to the price differential.

RTi Polyethylene Outlook and Suggested Action Strategies

30/60 Days: A late month downward price settlement can be expected. Resin prices will continue a downward trend until oil settles. North America prices will not settle until the price in China and SEA settle. Look for a delta of $0.07/lb to $0.10/lb above the global price. Continue to buy as needed and expect decreases in January and February. 90 Days: Not until oil finds its bottom and global markets return to normal buying, can the NA market begin to also find its bottom. Until then, the market will be soft and buyers should buy to meet demand.

In the PP market, contract PGP prices were last settled in December at $0.615/lb, which was down $0.10/lb from November contract prices. Heading into January there has been a nomination for down $0.08/lb, but recent spot trading suggests PGP could settle down more than that.

Earlier this week spot PGP transacted a couple times at $0.47/lb. This was down roughly $0.05/lb from recent values in the latter half of December.

Based on a typical $0.025/lb spread between spot and contract prices, this would lead to a contract PGP settlement of $0.495/lb (down $0.12/lb). January settlement discussions should be picking up speed over the course of the next week.

Spot RGP is being valued at $0.35/lb but activity has been slow. RGP is carrying a fairly large discount to PGP. Should PGP settle down $0.12/lb, the RG-PG spread would still be $0.145/lb.

Propylene markets in the Far East have been interesting. FOB Korea prices were down as low as $530/mt ($0.24/lb) back in late December. Since, values have crept back up to $670/mt ($0.304/lb). Prices likely overreacted, and with a surge in demand, prices bounced back up. Based on where oil and naphtha prices are currently, propylene prices in the low 30s should be close to the bottom for this region. Nevertheless, a $0.304/lb PGP (FOB Korea) price is still heavily discounted to US prices. Even if US PGP were to settle down to $0.495/lb, it would still carry a premium of nearly $0.20/lb. This leaves the arbitrage to the US wide open. We have heard that a couple more propylene cargoes may have been booked from the Far East to the Americas. We are trying to get confirmation.

From a supply perspective in the US, propylene is looking good. Most steam crackers are running. CPChem Cedar Bayou moved up a TAR. They should be down about a month. Cash costs favor heavies, and there has been some small scale feed switching taking place. PDH and metathesis units are running and refineries are running at 93.9%.

Propylene inventories reported by the EIA have been building for the past ten weeks. Inventory levels currently sit at 3.65 million barrels.

On the polypropylene front, availability of material has been very limited. Converters and traders both are having a difficult time finding resin. The situation appears to be felt more on homopolymers. The mystery of it all is that PP inventories were at a 19-month high. We hope to see an explanation from the ACC preliminary numbers that are due out any day.

Sales contracts for 2015 are mostly complete. There has been a wide variety of pricing mechanisms used heading into 2015. On average, two cents of margin has been implemented into PP prices. In some cases, slightly more. There are also reports that producers are continuing to push for additional margin expansion.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: With PP prices likely to be down about $0.25/lb from the October high, January is a good time to start thinking about ramping up resin purchases. We do think that prices will continue to fall into February or beyond. If you resin stocks are ample, it makes sense to wait. 60/90 Days: The market is in the middle of a black swan event with oil markets down 50% or more. It is difficult to say with confidence where the ultimate bottom will be.

PVC is down $0.05/lb across Nov/Dec with a further decrease of $0.02/lb to $0.03/lb expected in January as ethylene contract settled down $0.0725/lb in December with further downward movement expected in January.

Producers have nominated a defensive $0.03/lb increase for February predicated on supply constraints from planned maintenance. The goal is to prevent further decreases before the supply constraints and the return of exports and construction season demand. Although construction demand is expected to be good this year, the return of export demand is highly dependent on higher oil prices.

Early indications are that the US export PVC pricing will continue to chase lower priced PVC overseas derived from low cost oil. Prices fell below $0.32/lb, more than $0.03/lb over the past month, adding to the downward pressure on spot and contract PVC pricing for January.

PVC raw material costs in September peaked at a $0.015/lb premium to January 2014. October fell $0.02/lb, and November was down $0.035/lb from the sharp drop in ethylene as well as a contribution from chlorine. December costs are down $0.035/lb with an additional $0.01/lb to $0.02/lb expected in January due to ethylene.

Feedstock reductions of $0.08/lb to $0.09/lb in Q4 2014 to levels not seen in more than five years are well below costs from a year ago even as prices are up a net $0.06/lb in 2014, substantially increasing producer margins primarily due to short PVC supplies and ethylene escalations.

Ethylene contract prices for December settled down $0.07/lb at $0.3825/lb. January has not yet settled. Spot prices on a monthly average have been receding and are currently $0.04/lb lower than December. Spot prices jumped up a little around mid-December due to some planned TAR’s. With the restart of one, and the announcement by the Williams facility that it will have commercial product this month, spot prices have begun to recede once again. Prices are back below $0.40/lb ($0.38/lb).

The chlorine markets remained stable over the holidays at the lowest prices since early 2009.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Use falling feedstock and export prices along with slow demand (seasonal & export) to offset planned supply constraints to secure a price reduction in January. Buy as needed until we see the January decrease kick-in. 60/90 Days: As ethylene supplies continue to be strong and export PVC demand struggles due to low priced oil, look for roll backs of more of the Q1 2014 increases keeping an eye on the impact of planned outages and restocking after the January decrease.
December PET contracts settled down $0.03/lb to $0.04/lb.

Crude oil prices have continued lower, bring paraxylene pricing down with it. WTI oil is under $50/bbl for the first time in years.

Spot paraxylene prices are at the lowest levels in six years, during the financial crisis. Contracts at this time reached as low as $0.32/lb. Current PX contracts are at $0.46/lb, with a few more pennies expected to come out this month.

Further reduction in PX will bring more decreases to PTA, and likely to PET. At this time, there is potential for another $0.02/lb to $0.03/lb to come out of PET based on falling costs, soft demand, and competitive imports from Asia. Unless demand picks up dramatically, a decrease is likely.

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.

Contract PET prices have been largely in decline since early 2013. The graph below shows the general trend, with the market down roughly $0.20/lb.

Despite all the declines in the domestic market, the China market is seeing bigger drops. Material can be brought into the US at prices approaching domestic production costs.

RTi PET Outlook and Suggested Action Strategies

30 Days: More declines are projected for January. Target pricing will be based on the PX and PTA settlements. An additional $0.02/lb could potentially come out of the market. Buy as needed until a bottom becomes clearer. 60/90 Days: Any significant purchases can be pushed into February or March. January prices will be attractive, but there is potential for further decreases later in Q1. Upward potential is minimal during this timeframe, especially considering domestic PTA supply is only getting better. Oil prices will continue to be the key driver.
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