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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 02/02/2015 (17:49)
According to Resin Technology Incorporated’s (RTI) monthly market driver report for plastics processors, the polyethylene market settled down $0.04/lb in January. Multiple suppliers have offered only $0.04/lb as of late this week. RTi will closely monitor the PE market for any late changes which could happen into next week. It is not likely that resin suppliers will make an unprecedented change in the favor of resin buyers.

Prime market prices have decreased $0.11/lb since November and an additional $0.07/lb or more can be expected. Non-market decreases in the secondary markets have totaled $0.15/lb to $0.20/lb since October 2014.

Prices in SEA, China, Latin America and Europe are expecting minimal decreases in February. Prices in most regions have already declined $0.15/lb to $0.20/lb since October. Buyers are beginning to sense a bottom as low end prices have started to stabilize.

Ethane continues to sell below $0.20/gal and the spot ethylene market is steadily under $0.40/lb. Both markets continue to have no impact on North American prices.

Unscheduled maintenance problems with the Evangeline pipeline have limited ethylene to Louisiana again. Exxon has announced allocation for several products from their Louisiana plant.

Off grade resin continues to be available with a price of $0.57/lb to $0.63/lb for almost all grades of PE.

The regional disconnect in PE prices is notable in December’s export totals. Over the past few years, producers have exported 26% to 27% of production. In December 2014, only 19% was exported.

Ethylene: December contract prices settled at $0.3825/lb (down $0.0725/lb). January has not firmed. Average spot prices are $0.375/lb (down ~$0.06/lb). The ethylene supply position is long. The cash cost to produce ethylene is holding stable at just under $0.08/lb.

Ethylene outages and restart dates:
− CPChem Cedar Bayou - Planned 38 day outage, expected to restart mid-February
− Williams Geismar - Has feed, but no commercial product
− Evangeline Pipeline - Restart early March
− Shell Deer Park - Planned 29 day outage, expected restart early February
− Exxon Beaumont- Unplanned, restart in process

RTi Polyethylene Outlook and Suggested Action Strategies

30 Days: A late February final downward price settlement can be expected. Resin prices will continue a downward trend until oil settles. North America prices should settle soon as global prices find the bottom. Look for a delta of $0.07/lb to $0.10/lb above the global price which should settle in the low to mid $0.50’s. Continue to buy as needed and expect decreases in February and March. 60/90 Days: At today’s global resin cost structure, prices need to be closer to $0.60/lb. Buying activity after the Chinese New Year will be a strong indicator of the March price. Resin markets may not settle until after the 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.

In the PP market, over the next week or two February PGP contracts will get settled. Over the course of January, the spot markets for propylene have bottomed out and even bumped higher, especially in RGP’s case. Spot RGP was traded this week in the $0.38/lb to $0.39/lb range, which is up by about $0.03/lb. Spot PGP was traded at $0.4725/lb. Based on these benchmarks, a flat settlement is a strong possibility. There could also be a push for a slightly higher settlement. There is at least one nomination for February contract prices to increase by $0.015/lb.

We have entered the refinery TAR season and operating rates have dipped into the mid-upper 80% range, which is typical and expected. Refinery and FCC outages should peak here in the next week and then start to taper off. What is interesting is that propylene inventories continue to climb during a time of year where they typically would be in decline due to outages. EIA inventories were up to 4.223 million barrels, which is where the peak was for all of 2014. Our sense is that RGP is feeling some pressure due to outages. CGP and PGP are in a better spot in terms of supply.

The other issue impacting the monomer market is the heavy demand for propylene and PP hedges. This has kept a consistent bid in the market which has helped to prop up prices. So, for the short-term, PGP prices are likely to stay close to the January price of $0.495/lb. One thing this price level does, however, is incentivize production. Metathesis and PDH sources are incentivized to run. Heavy feeds at the cracker are also incentivized. Let’s not forget the heavy premium the US price carries to other regions which leaves the import door open. Once we move past the peak of outage season and the hedge bid tapers off, we can expect that propylene supplies should perform well. The one threat to this scenario is a strong demand trend, but it is difficult find demand when your price carries such a hefty premium.

On the polypropylene front, producers have been successful in implementing a minimum of $0.02/lb worth of margin expansion into the polypropylene price. In many cases, it is $0.03/lb or $0.04/lb. Some producers have fresh increase letters out that call for additional margin expansion of which their success is not yet known. One of the letters is calling for another $0.05/lb worth of margin increase.

With monomer prices already at a premium and PP prices now increasing its spread over monomer, US PP prices are well above prices in the rest of the world. The potential is that PP based finished goods from other regions compete for more US market share.

The polypropylene market has also had to deal with two Force Majeure announcements recently. The overall market remains tight. There is not much excess resin available and February orders appear to be on the strong side.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: Prices for February look to be flat to higher. Some of this depends on the success of the next round of margin expansion. Make sure you have your orders placed and requirements covered. Availability could get difficult. 60/90 Days: We do see potential for monomer prices to resume a downward trend once the market gets past its current hurdles.
   
In the PVC market, PVC is down $0.05/lb across Nov/Dec with a further decrease of $0.02/lb to $0.03/lb in negotiations for January.

The ethylene contract settled down $0.0725/lb in December with another $0.03/lb downward movement expected in January, complicated by the lengthy restart of the Williams cracker not yet completed and another Evangeline pipeline outage offset by PVC maintenance at Formosa this month.

PVC producers have nominated a defensive $0.03/lb increase for February with an additional reinforcing $0.03/lb for March by at least one producer.

The first increase was 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 February is unlikely.

However, export pricing moved upward over the past week on tighter availability, indicating that the steep discounting in export pricing had had its desired effect of draining off some of the excess material in the domestic market. Now the producers will rely on the slate of three maintenance outages this quarter to prevent price erosion past January.

Export demand improvement has suffered from the stronger US$ and lower oil to bottom out last week below $0.30/lb, declining more than $0.05/lb in six weeks. This week prices rebounded to above $0.31/lb as less material was made available.

PVC raw material costs in December fell $0.035/lb with an additional $0.015/lb to 0.02/lb expected in January due to ethylene. February costs are forecast up $0.01/lb, but are $0.07/lb below December 2013 levels. Pricing is up a net $0.04/lb over the same period before discounts, indicating a margin gain of up to $0.11/lb due to short PVC supplies and ethylene escalations in 2014.

Ethylene: December contract prices settled at $0.3825/lb (down $0.0725/lb). Spot average prices are $0.375/lb (down ~$0.06/lb). January contracts have not settled. The ethylene supply position is long. (See below for unit shutdown status). The cash cost to produce ethylene is holding stable at just under $0.08/lb.

Chlorine: There has been steady downward movement in chlorine prices since the peak in May. On the spot market, prices have dropped a cumulative 35%. However, contracts have not had the same advantage, and multiple producers have announced increases in Q1. Chlorine has reached a bottom and pricing will likely move up into the summer.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Leverage lower feedstock and export prices along with slow demand (seasonal & export) to offset planned supply constraints to secure a price reduction in January, pushing for down 3. Buy as needed until we see the January decrease kick-in. 60/90 Days: As ethylene supplies strengthen and export PVC demand remains difficult, look to push out defensive increase nomination while looking for roll back opportunities of more of the 2014 increases while keeping an eye on the impact of planned outages and restocking after the January decrease.

In the PET market, January PET contracts are settling down $0.04/lb, on average, from December. There is some fluctuation in this number depending on your reductions last month and overall position in the market.

The biggest driver during the past couple of months has been crude oil. Brent prices have been hovering just under $50/bbl for the past week, and it appears that the market is finding a potential bottom. While oil is not perfectly correlated to PET prices by any means, at this time it will be a strong indicator of direction. There are no significant supply issues at this time, and supply can adequately meet demand.

PTA concerns 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.

If oil pricing remains stable, then the next biggest driver will be how demand plays out surrounding the Chinese New Year holiday. It is expected to remain soft leading up to it, but the degree of demand after it should dictate the market direction. This could potentially bring the first PET increase since August 2014.

As of now, the market in Asia is somewhat in limbo. Buyers have been hesitant to commit to any serious purchasing, and material is still being shipped to the US at very attractive prices (low $0.50s/lb).

From a cost perspective, PET is likely to bottom out in February. However, pricing may see lower moves as margin gained in the second half of 2014 are expected to be given back. With supply issues mostly resolved, there is little leverage producers have at this point.

PX: Crude oil prices dropping more than 50% over the past six months has led to continuous declines in paraxylene pricing. January contracts in the US settled down $0.05/lb at $0.41/lb. This is down nearly $0.29/lb from the 2014 peak in July. Asian pricing has also followed the same trend.

PTA: Pricing in Asia and the US have moved down consistently for several months following similar declines in feedstock paraxylene. US contracts settled at $0.40/lb, with February projected flat to slightly down. The market in Asia saw some softening this week as PX contracts were re-nominated slightly lower.

EG: Just like the other feedstocks, ethylene glycol prices are moving substantially lower. Asia is leading the way, as the US prices are directly impacted by that market. Based on the movement in the spot market, February is also projected down a couple of cents per pound.

RTi PET Outlook and Suggested Action Strategies

30 Days: February PET prices are projected flat to down slightly. This will be a good time to add inventory as the downside potential in the future appears limited. 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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