Weekly Market Drivers for the USA
The continuous delay of an aggressive price decrease is beginning to have an impact on North American resin processors. Film processors have begun to be challenged from almost every region of the world with lower finished goods price requests.
Total resin price decreases of $0.18/lb from the September 2015 high should be targeted with today’s feedstocks levels. November and December PE prices fell $0.07/lb and January is heading down $0.04/lb.
Traders have turned down suppliers’ offers for $0.45/lb. BRC FOB Houston for LLDPE and HDPE export. Traders are not willing to take inventory positions at this price due to market uncertainties.
Chinese and SEA buyers have already backed away from buying and will be sidelined until after the Chinese New Year. Resin pricing in this region is approaching $0.50/lb.
European PE prices are in the high $0.50’s with more decreases expected in February.
Several reports of a backlog of full railcars continue. The lack of exports and the resin processors’ inventory control will continue to have an impact on the inventory build.
Ethylene and ethane markets are soft. Ethylene traders are carefully watching if suppliers choose to reduce production to manage inventories. Production reductions will further weaken the ethylene market.
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, January PGP contract prices settled earlier in the month at $0.495/lb, down $0.12/lb from December.
Spot PGP was traded at $0.48/lb, which is up from recent values. Spot PGP was subsequently offered at $0.48/lb with no bids. At the moment, PGP at $0.48/lb does not leave any room for February contracts to settle lower. We will have to watch this number over the next week or two.
Spot RGP traded late this week at $0.35/lb. This is down from the last trade at $0.38/lb. Overall, propylene markets have hit the brakes for the short-term. Oil too has found some balance in the
$45/bbl to $48/bbl range.
From a supply perspective, the market has a few outages to contend with over the next couple months. There are some scheduled outages at both the refinery and cracker level. Compared to historical maintenance seasons, however, the planned outages are not too great. Plus, we continue to see propylene supply from other sources. PDH and metathesis sources continue to run. For the crackers that are running, we have heard that the percentage of heavier feeds has started to increase which will put more propylene into the market. We can also confirm that that there are at least two cargoes of propylene heading this way from other regions as the arbitrage remains wide open.
Propylene inventories reported by the EIA continue to build with levels reported at 4.17 million barrels. One factor that could be contributing to the resistance the market has seen is the amount of hedging taking place. In some cases these transactions are supported by physical propylene that is bought and held in storage which would make it inaccessible to the market. This would have a balancing effect on the market which is what we have seen with prices. Eventually, those pounds do get released back into the market.
In polypropylene, two force majeure events have been announced this month, one from Ineos and the other Phillips66. We do think that this will lead to some supply issues, especially for copolymers. There have also been a couple price increase announcements calling for margin expansion. The most recent is from Pinnacle which is for a $0.03/lb increase in PP prices beyond the movement in monomer price.
The initial margin expansion that has been implemented into the market is taking effect this month. We expect that major indexes will be reporting a minimum of a $0.02/lb expansion. We are seeing some success with margin expansion beyond the first two cents. Over time, should producers have success among the broader market, could lead to further expansion being reported.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: With the current production issues taking place for PP, it is important to make sure you have your requirements covered. We expect to see certain grades of material become difficult to source. 60/90 Days: The downward momentum in price has stalled for the moment. February prices look to settle close to flat based on current indicators. Fundamentals, however, point to strong supply dynamics which could lead to further price erosion in the following months.
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 another $0.03/lb 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 $0.03/lb increase for February predicated on supply constraints from planned maintenance. The goal is to prevent further decreases before the supply constraints and the potential improvement of construction season demand. Implementation in Q1 is unlikely.
Export demand improvement is highly dependent on higher oil prices and will continue to suffer from the stronger US$ as export pricing fell to $0.30/lb, declining more than $0.05/lb in the past six weeks.
PVC raw material costs in December costs fell $0.035/lb with an additional $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 its limits against substantially lower global PVC pricing.
Ethylene spot prices are currently ~$0.36/lb. Supply is good despite some assets still down. The Williams Geismar unit has yet to produce commercial product. There are no reports as to what is causing the current delay. Evangeline remains offline, as does Exxon and CPChem.
Chlorine prices remain soft, but there is pressure from at least one producer to increase contracts.
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, pushing for down $0.03/lb. 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 back opportunities 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 heading down roughly $0.04/lb from December. There is some slight fluctuation in this figure, depending on how much of the raw material cost reductions were passed through at the end of last year.
The cost to produce PET this month, although not official, is projected down roughly $0.04/lb at this time. February also has potential for another penny to come out based on upstream costs.
US paraxylene contracts settled down $0.05/lb for January at $0.41/lb, which will contribute to a PTA settlement near $0.40/lb.
Spot PX pricing has rebounded up a few pennies this week in a continuously volatile market.
PTA supply issues are not really a factor still as demand remains in balance. However, domestic PET demand will improve as the warmer weather arrives, and will put upward pressure on prices – likely starting in Q2.
Crude oil markets appear to be stabilizing in the mid to upper $40’s/bbl range. The death of the King of Saudi Arabia should not factor into the market as there are no plans to change policy. The European Central Bank is beginning their own quantitative easing plan to stimulate the European economy. This has the potential to put a floor under crude oil pricing.
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. There is too much material, and very little incentive to make any large purchases. Although there is not a substantial amount of exports to the US, it is competitive enough to keep pressure on US prices. Material can be purchased and brought to the US for under $0.60/lb.
RTi PET Outlook and Suggested Action Strategies
30 Days: PET prices will come down $0.04/lb, on average, for January. 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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