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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 16/02/2015 (18:54)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, PE inventories exceeded the six year high in January. There was a 218 million pound gain from December (HDPE +82; LDPE +29; LLDPE +107). Resin suppliers’ reluctance to meet global price decreases due to the fall in oil have finally allowed supply to exceed demand in North America. The arrogance of resin suppliers not to swiftly meet new price points has turned the PE markets from tight to over-supply in 90 days. (See RTi PE Inventory report 2/11/2015)

Exports were soft, contributing to the inventory build. HDPE and LLDPE are the highest volume exported resins. Both of these resins realized the highest inventory gains. Not until suppliers meet global price points will the export market recover, which is approximately 20% of the total resin produced annually.

Only Formosa has formally offered the $0.05/lb decrease for February. This should be the minimum decrease for February. Expect all other suppliers to meet this offer.

The most outrageous price increase letter of all time was sent out today. Dow announced a $0.05 price increase for March. Oil prices would have to increase over $20/bbl in March to gain any support in today’s market. Dow does not offer a reason or justification in the letter.

Low end PE resins may have bottomed in the very low $0.50’s/lb. Most secondary market and off grade resins are selling from $0.55/lb to $0.61/lb. At today’s cost to produce globally, this may be the low point for these markets.

Chinese and SEA markets have withdrawn from activity until the Chinese New Year celebration has concluded. Low end prices have stabilized, and some have increased $0.01/lb to $0.02/lb.

Spot ethylene prices weakened a little this week with the restart of the Williams facility. Spot ethylene traders are concerned about the strength of the market and are reluctant to take positions. Ethane prices remained in the $0.17/gal to $0.18/gal range. Neither feedstock is a driver for PE prices today.

RTi Polyethylene Outlook and Suggested Action Strategies

30 Days: Expect prices to decrease at least $0.05/lb in February. Global prices have begun to settle. Continue to buy as needed and expect another decrease in March if the price settles only down $0.05/lb in February. 60/90 Days: At today’s global resin cost structure, low prices need to be closer to $0.60/lb. In order to regain the export position in Latin America, the NA supplier must meet or improve on today’s mid to low $0.50/lb price from Middle East, Korea and other SEA suppliers. Expect prices to firm or settle in April, with very little chance of upward movement as oil takes the forefront as the main driver for resin prices.

In the PP market, contract PGP for February has not settled. There are two nominations, one for up $0.01/lb and another for up $0.015/lb. Based on spot propylene valuations, sellers can make a strong case for a $0.01/lb to $0.02/lb increase for February contract prices. We have heard that buyers are pushing their case for a flat settlement. In any event, the February settlement will be close to flat with potential for a slight uptick in price.

Spot RGP was last traded at $0.425/lb, almost a week ago. We have not seen any activity in the last several days. The most recent trades for spot PGP were between $0.485/lb and $0.495/lb. A $0.49/lb spot PGP value supports a February contract price of $0.515/lb, an increase of $0.02/lb. The RG-PG spread is also looking compressed near $0.07/lb.

From a supply perspective, RGP is feeling tight. Several refinery TARs are in process. Refinery run rates actually increased this past week to 90.0% (US) and 90.6% (PADD3), but there are still several large FCC units down in the Gulf. The United Steelworkers strike also presents some risk to refinery output. The Dow Freeport steam cracker is restarting this week. It is a relatively strong propylene producer which will help supply once at rate. We have also heard the CPChem Cedar Bayou cracker will be restarting over the next week or two. The Williams cracker is in the process of restarting as well. Propylene imports are ongoing with reportedly two to three cargoes due to arrive over the next several weeks.

Propylene inventories reported by the EIA have dropped the past two weeks from 4.223 million barrels to 4.086 million barrels. Overall, inventory levels are near 12-month highs. RGP, however, is tighter than the other grades and is keeping RGP prices firm. Hedging activity continues to be strong which has also had an influence on the firmness in propylene prices. Once the current outages begin to wind down over the next month, propylene supplies should come back. Regarding Dow’s PDH unit, they have recently stated that the project is on track to being start-up in the June-July timeframe.

Polypropylene has suffered several production issues with three Force Majeure announcements coming in the past month. P66 has one line down. We have heard that they moved up their scheduled TAR to coincide with their current outage. Pinnacle’s production issues stem from a loss of feedstock from Marathon, their main monomer source. We have heard that Marathon is in the process of restarting their FCC. Hopefully, monomer can start to flow in the next couple weeks.

These production issues are certainly creating some difficulty for converters trying to stay amply supplied. In most cases we have seen, converters have been able to secure supplies from other sources. January production and sales of PP were both above average. Inventories were stable with days of supply coming at 33.3 days.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: Buy as needed. Prices are firm, but supplies of monomer and polymer should rebound over the next month. Assuming oil prices stay in current ranges, we could see monomer prices softening slightly. 60/90 Days: Volatility in the price of oil will be a big wild card in regards to prices moving forward. Demand trends will also play a key role.

PVC is down $0.05/lb across Nov/Dec with a further decrease of $0.02/lb in January.

The ethylene contract settled down $0.0725/lb in December and another $0.03/lb down in January with spot pricing moving lower now that the lengthy restart of the Williams cracker is complete, adding into the market nearly two billion pounds of ethylene in Louisiana, relegating the Evangeline pipeline outage to background status.

Formosa completed their maintenance outage; Shintech has started theirs. Axiall will be out next month.

PVC producers have nominated a defensive $0.03/lb increase for February and an additional reinforcing $0.03/lb for March. February is more likely to see flat to down than an increase unless we have an unplanned outage. An increase in March will require a substantial increase in demand ahead of the construction season or more severe operating rate discipline. Operating rates for January did fall below 80% due in part to the Formosa outage.

Back to back increase nominations are designed to retain margins gained last year as supply constraints from maintenance tighten the market and seasonal improvement of construction demand hits.

Export pricing bottomed out at $0.30/lb, declining more than $0.05/lb in six weeks. Over the past three weeks, prices rebounded to nearly $0.33/lb as less material was made available. January exports fell 26% to a level 10% less than a year ago.

PVC raw material costs in December fell $0.035/lb with an additional $0.015/lb in January due to ethylene. February costs are forecast close to flat to down, but are $0.07/lb below December 2013 levels. Pricing is up $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.

Overall demand fell 7% in January and is 9% lower than a year ago. Inventories in January were 11% lower than a year ago. Domestic demand improved 5% in January but was 8% below a year ago.
Spot ethylene prices ended the week down after a slight uptick, with the monthly average price still below that of January. The Williams Geismar unit has actually produced ethylene for sale this week; the first sale in nearly two years.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Leverage lower feedstock and export prices along with slowed demand (seasonal & export) to offset planned supply constraints to secure a price reduction in February. Look for incentives to buy additional volume despite outages as the export market will continue to be low cost overseas from oil. 60/90 Days: As ethylene supplies strengthen and export PVC demand remains difficult, look to push out defensive increase nominations while looking for roll back opportunities of more of the 2014 increases, while keeping an eye on the impact of planned outages.

In the PET market, February contracts have not settled, but are projected to settle close to flat.

Ports along the west coast of the US will be shut down over the weekend and through Monday as labor contract negotiations continue. Slowed productivity in recent time has led to delayed deliveries.

Delayed PET from Asia has caused an increase in domestic spot prices. This tightened availability could provide more leverage for US producers in negotiating February PET contracts, if the port issues are not resolved in reasonable time.

Demand has been expected to resurface this month as resin prices are potentially bottoming out. Seasonal demand is expected to add upward pressure to prices in the coming months.

The crude oil markets remain volatile, but have seen some overall strengthening over the past week. WTI prices are up over $50/bbl, with Brent futures up over $60/bbl. However, fundamentals of the oil markets do not suggest any strong, sustainable increases at this time.

Much of the reductions in crude oil prices have translated to the PET markets. Raw material costs appear to be stabilizing, and have the potential to settle close to flat this month.

Paraxylene contracts remain unsettled for the month, but based on the current spot markets, another decrease is unlikely. A settlement is expected next week.

PTA also remains unsettled, but will move similar to PX. There are reports that BP’s Cooper River PTA plant issues are largely resolved, and should have any adverse impact on the market going forward. PTA in Asia has seen some firming as downstream PET production rates remain strong.

PET pricing in Europe, on a dollar basis, has gotten very cheap as the euro lost so much strength. This could deter imports from Asia, and leave more material available for the US, if needed.

RTi PET Outlook and Suggested Action Strategies

30 Days: February PET prices are projected mostly flat from January. If flat or even down pricing is available, building inventory is advised. The downside potential in the next couple of months appears limited. 60/90 Days: If all port issues are resolved and demand in Asia remains at average levels, PET increases will be limited or avoided. However, any serious oil moves in either direction can take immediate control once again as the primary driver.
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