Weekly Market Drivers for the USA
The Dow increase letter did not get any support this week and is not expected to receive any support.
Secondary markets have reached a bottom. Low prices have increased from the early February low. Prices for all off-grade PE resins are settling in the $0.54/lb to $0.58/lb range.
Global market activity has paused due to the Chinese New Year’s celebration that will end late next week.
Expect buying activity to be strong as this region has also reached the bottom and oil prices have been firmer. Naphtha prices are $525/mt, which is more than $100/mt over the mid-January low.
Approximately 520 million pounds of PE were exported in January – down 100 million from the three year average. Operating rates in January were strong, with exports representing only 15.5% of domestic production. Supplier offers are beginning to get attractive to the export market.
RTi Polyethylene Outlook and Suggested Action Strategies
30 Days: Global prices have begun to settle and rebound. Prices will not increase in March. Recent increases in global feedstocks, resin pricing and the expected return of buyers in Asia will determine if more decreases are available in March. Off grade and spot buyers should consider offers as prices rebound. Continue to buy as needed. 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 finally settled this week at up $0.01/lb. This puts PGP contract prices at $0.505/lb for the month. The settlement of up $0.01/lb is consistent with expectations based on recent values in the spot propylene markets. Compared to 2014 average PGP prices, 2015 prices are almost $0.21/lb lower. Spot PGP was last traded at $0.485/lb, which is down $0.005/lb from previous trades. Spot RGP was being bid for February in a range of $0.40/lb to $0.41/lb with offers at $0.42/lb. March RGP bids were seen at $0.38/lb and $0.39/lb.
On the supply side of monomer, steam cracker outages are wrapping up. CPChem is in restart. Shell is expected to restart this weekend. Williams is back down but will try again next week. Heavier feeds such as propane and butane continue to be competitive in the crack. Refinery and FCC outages should be turning the corner, but recent unplanned issues continue to surface. FHR’s PDH is running and metathesis units are running. There are still a couple cargoes of imports due to arrive in the near future.
Refinery run rates for the US were down from 90.0% to 88.7% and PADD3 rates were down from 90.6% to 89.9%. Overall, refinery rates are above their 5-year max for this time of year. Propylene inventories reported by the EIA, after two weeks of small draws, have rebounded back up to 4.17 million barrels.
Considering we are in the TAR season, inventory levels are well positioned for this time of year.
Relative to many of propylene’s benchmarks (oil, gasoline, ethylene, propane, global PGP), US PGP prices appear overpriced. As mentioned in previous updates, the high level of PGP and PP hedging activity has kept a consistent bid in the market for propylene. This has contributed to the firmness the market has seen in price. Once TARs are completed, propylene is incentivized to run and supplies should improve. This should lead to lower prices heading into Q2. The one wild card to this scenario is oil price. A significant upward move in oil prices would change market dynamics.
The polypropylene market feels tight. Converters and distributors alike are reporting limited offerings from the producer side. Pinnacle Polymers, whom announced FM on February 6th, is said to be close to restarting their PP lines. The Marathon refinery which supplies monomer to Pinnacle has also reportedly restarted. The downed P66 line has restarted as well. Hopefully the recent production issues will soon be behind us.
LBI announced they will increase PP prices by $0.03/lb beyond the movement in monomer price. This will be effective for April 1st, 2015. This letter follows other recent margin expansion attempts. Pinnacle announced on January 3rd a price increase of $0.03/lb. Total announced on January 28th a price increase of $0.05/lb, and Braskem announced on January 14th a price increase of $0.02/lb. All of these announced increases were for price movements beyond the movement in monomer price (margin expansion).
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: Buy as needed. There does not appear to be any immediate threat of further increases. Unplanned outages, a major movement in oil prices, or any other supply related events could change the outlook. 60/90 Days: We expect monomer supply to come back strong and inventories to build.
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 with another $0.03/lb down in January as spot pricing is moving lower now that the lengthy restart of the Williams cracker is underway (not without its fits and starts), adding into the market nearly 2 billion pounds of ethylene in Louisiana.
Formosa has completed their maintenance outage and Shintech has started theirs. Axiall and Oxy 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 as spot ethylene prices have been moving lower on improved supplies. An increase in March will require a substantial improvement in demand ahead of the construction season to add to the pressure of the currently scheduled outages. 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 in late January, declining more than $0.05/lb in six weeks. Over the past four weeks prices rebounded to break the $0.34/lb level 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 are only ~$0.02/lb, on average, lower than January prices. Supply is balanced.
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 to buy additional volumes on February reductions despite outages as the export market pricing increases will be limited by low cost overseas from oil. 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.
With holidays in Asia, the PET market was quiet this week. February contracts have not settled, but are still projected to settle close to flat.
Ports along the west coast of the US remain congested, leading to continued delays in deliveries.
The Lunar New Year holidays in Asia, as well as these shipment delays, have caused an increase in domestic spot prices. This tightened availability and could provide more leverage for US producers in negotiating PET contracts. Producers have already announced $0.04/lb increases for March.
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 more 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. The average spot PX price this month is up 8% from the average in January.
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 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. However, any serious oil moves in either direction can take immediate control once again as the primary driver.
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