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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 19/01/2015 (17:24)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, in the PE market, as of Friday, only LBI has offered the $0.04/lb decrease for the January prime resin price. This is an indication that suppliers may be considering more than the $0.04/lb January discount that needs to occur to meet global price moves.

Secondary market pricing remains in the mid $0.60’s for most resins. Distributors report very little buying activity as prices are expected to continue down.

December exports were below the three year average and well below the historical December resin inventory push at severely reduced prices. Exports were 20% to 30% below the December 2012 and 2013 totals. Suppliers could not find speculative buyers or meet new price points to move volume in December to any region. For the first time in years, inventories will be healthy in the first quarter.

Naphtha prices realized additional decreases this week due to oil prices and soft demand. Prices fell to the $400/mt mark, which decreases the cost to make a pellet in Southeast Asia to the high $0.40’s/lb.

The 17% drop in oil prices in the last 30 days slightly stalled this week with trading in the mid-$40/bbl range. The duration and strength of this short term stability could be a factor in establishing a global resin price floor.

Latin America, China and Southeast Asia continue to resist restocking as lower prices continue to be offered. Prices are trending toward $0.50/lb (BRC equivalent) for the commodity resins.

Buying activity after the Chinese New Year will be a strong indicator of the March price. Resin markets may not settle until post NPE Show late March.

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.

RTi Polyethylene Outlook and Suggested Action Strategies

30 Days: A late month final downward price settlement in January 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. 60/90 Days: At today’s global resin cost structure, prices need to be closer to $0.60/lb.

In the PP market, contract PGP prices for January settled early in the week at down $0.12/lb for a PGP price of $0.495/lb. The last time PGP contract prices broke below the $0.50/lb mark was back in November 2009.

The spot propylene markets have been quiet until Thursday when RGP traded at $0.38/lb. This is slightly up from recent values in the $0.35/lb to $0.36/lb range. If RGP can maintain the $0.38/lb level, the spread to contract PGP will have compressed to $0.115/lb, which is very close to the average spread of about $0.10/lb.

RGP is currently at a slight premium to its normal relationships with gasoline and alky values, but it is clearly closing in on benchmarks that typically create some resistance.

PGP prices FOB Korea have bumped higher to $0.323/lb. Recent demand for propylene and the shutting of several propylene producing assets in the region have caused the bump in prices. The arbitrage to the US for propylene closes somewhere in the mid-low $0.40’s/lb.

The point here is that we can start to see a few of propylene’s resistance points spread throughout the $0.40’s. Propylene still has room to fall, but we appear much closer to the bottom. Of course, we still have the wild card of oil and global energy prices.

Propylene supplies in the US still look good. Refinery OP rates did lose ground this week with rates coming in at 91.0% (US) and 92.2% (PADD3) – down, but still decent rates. Heavy feeds are favored at the cracker, but we do have some planned and unplanned outages at the cracker level. PDH is running and has been able to maintain strong margins despite the drop in propylene prices. We have also heard a few cargoes of propylene have been transacted for importation to the Americas.

EIA inventories of propylene built once again to 3.87 million barrels. This is a level that the market never saw at all in 2014.

On the polypropylene front, an increase letter from Braskem stated their intent to increase PP prices by $0.02/lb beyond whatever the movement is in PGP. Implementation is set for February 1st.

Ineos announced a Force Majeure on homopolymers and randoms out of their gulf coast production due to an unexpected issue.

Interestingly enough we actually saw better availability into the spot markets this week with groups of cars being offered into several different markets. Price points were competitive and even fairly aggressive in certain cases.

Inventories of polypropylene dropped by 22 million pounds by the end of December, but still remained close to 2013 and 2014 highs.

For most PP buyers, prices will not fall the full twelve cents in January that monomer did. For buyers that have not taken any margin expansion in recent months, it will take effect in January (with few exceptions). We expect that the major industry indexes will show margin expansion effective in their January numbers. There is varying degrees to how and how much margin expansion is being implemented. We would call it a solid two cents, but there are current efforts to push that to three and four cents.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: With prices as low as they have been in years, now is a good time to be a buyer. There is potential for prices to fall further, but a bottom is in sight. 60/90 Days: Oil prices are a big unknown in the next few months. We also have some planned outages for both monomer and polymer towards the end of Q1.

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 contracts settled down $0.0725/lb in December, with further downward movement expected in January as the restart of the Williams LA and PVC maintenance in Louisiana offsets another Evangeline pipeline outage.

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 potential improvement 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 or increased demand overseas driving up pricing.

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, declining 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 October fell $0.02/lb, with November 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.

Expect PVC pricing to follow feedstock reductions at the very least as producers will have to rely more on supply constraints since even heavy discounting has limits against substantially lower global PVC pricing.

Ethylene spot prices are currently trending around $0.37/lb. Supply is pegged as ample. The Evangeline pipeline is offline again due to the removal of a special tool that checks for leaks. The duration of the shutdown is not known. Williams’ Geismar is starting to produce commercial product.

The chlorine market is stable, with very little activity. Spot prices have been flat to down since November.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Use falling feedstock and export prices along with slow demand (seasonal and 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, while keeping an eye on the impact of planned outages and restocking after the January decrease.

January PET prices are expected to come down at least $0.03/lb from December.

The cost to produce PET this month, although not final, is projected down roughly $0.04/lb at this time. February also has potential for flat to down movement based on upstream costs.

Crude oil continues to be the primary driver for resin markets. Both WTI and Brent prices are down below $50/bbl, with some reputable forecasts showing prices reaching $40/bbl. The latest Short-Term Energy Outlook from the EIA projects WTI prices to average $54.50/bbl this year, before moving up to average $71/bbl in 2016. A $3 to $4 Brent premium is forecast for the next couple of years.

With the continued declines in oil, paraxylene contract prices should also move lower. December contracts settled down $0.06/lb at $0.46/lb. January remains unsettled, but prices could come off an additional $0.05/lb or more.

Spot PX prices in the US have continued lower – down roughly $0.02/lb from last week.

PTA supply issues are still not likely to impact the market. Spot material is cheaper, on a global level, and availability is ample.

Ethylene glycol prices, in both Asia and the US, are down about $0.03/lb for January. This also adds downward pressure to PET. February will also likely see flat to down pricing.

The PET market in Asia continues to slide. Spot prices are down $0.04/lb to $0.05/lb this year, and this is impacting the US market by keeping imports at very competitive levels. Material can be purchased and brought to the US for under $0.60/lb.

Europe PET has also been trending down, and January is no exception. Paraxylene contracts settled down €110/mt from December.

RTi PET Outlook and Suggested Action Strategies

30 Days: PET prices will come down this month, with the degree dependent up on feedstock contract settlements. Buying a little extra material will not be regretted this month, but opportunities for flat to down pricing are expected to be available in February. 60/90 Days: This timeframe will depend on if the market in Asia bounces back after the Chinese New Year. At this time, it appears demand will be relatively weak until then. We could see the market start to turn around in March.
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