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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team -
  • 02/03/2015 (19:22)
According to Resin Technology Incorporated’s (RTI) latest monthly market driver report for plastics processors, in the PE market, February prices decreased $0.05/lb for all PE resins. The PE market has realized $0.16/lb of decreases from the October 2014 peak.

Off grade and spot resin prices have rebounded from the early February bottom. The prime versus spot delta allowed for healthy buying activity. Brokers reported above average sales volumes in February.

Market drivers for further price decreases after February have been reduced as global prices have also rebounded from the bottom due to higher feedstock cost. Naphtha prices increased over $100/mt in the past five weeks.

The North American $0.10/lb delta over the Chinese resin price is very close. Global demand and price points in March will determine whether or not more decreases can be expected in North America.

Exports to Latin America will resume in March as the price offers from other regions increase, allowing NA prices to become attractive again.

Spot ethylene is at $0.35/lb and ethane is at $0.19/gal – mostly unchanged in February. Cost to produce and deliver PE is near $0.25/lb, down $0.04/lb from the October 2014 benchmark.

Final inventory numbers from the ACC show a gain of 239 million pounds in January (HDPE +104; LDPE +24; LLDPE +111). This is revised higher by about 20 million pounds from the preliminary data.

Ethane: Prices have moved up slightly, along with natural gas this month. However, the cost to produce ethylene remains very cheap – below $0.10/lb. Even with ethylene prices down under $0.35/lb, margins are still strong.

Ethylene: February contract prices have not settled. January prices firmed at $0.3525/lb. The monthly average spot price is down ~$0.02/lb from January. Traditionally, the market likes to keep a $0.06/lb delta between spot and contract, which means February contract prices could possibly settle lower.

RTi Polyethylene Outlook and Suggested Action Strategies

30/60/90 Days: China and Southeast Asian prices have begun to settle and will increase in March if oil remains steady. Oil prices will be the leading indicator of resin prices moves. The daily and weekly changes in global prices will be a benchmark for North American PE prices over the next 90 days. Expect prices to firm and settle by April, with very little chance of upward movement in NA as oil takes the forefront as the main driver for resin prices. Continue to buy resin as needed and manage inventories to meet demand.

In the PP market, February PGP contract prices settled higher by $0.01/lb to $0.505/lb. There has also been a nomination for March PGP calling for up $0.015/lb. We’ll see, over the next week or two, whether there is enough support for an increase to actually take hold. Spot PGP transacted this week at $0.475/lb. Late this week, there have been offers for spot PGP at the same level, indicating it might be heading lower. In any event, spot PGP at this level is lower than recent values and does not offer support for a March increase. Spot RGP has traded in the upper $0.30’s/lb (pipe) and also in the low $0.40’s/lb for rail. With that, we can call RGP’s value somewhere in the $0.39/lb to $0.40/lb range. This is also slightly lower than recent values.

From a monomer supply perspective, the market is still working through various refinery/FCC outages. There have been some recent restarts, but Motiva, Exxon, Shell, Valero all still have portions of their refinery complexes in the Gulf down for work. Refinery run rates were down to 87.4% (US) and 88.2% (PADD3). We are at the tail-end of the TAR season and expect rates to improve over the next several weeks. Steam cracker rates have already improved and continue to crack a slightly heavier feedslate. Metathesis and PDH units are incentivized to run. There are reportedly still a couple cargoes of propylene imports due to arrive, but with recent increases in propylene prices in Asia and Europe, the economics for further imports does not look good.

Overall propylene supply has held up well during the outage season. Propylene inventories reported by the EIA grew this past week from 4.17 million barrels to 4.43 million barrels, a sizable jump. This is the highest level reported in three years. There was only a short period of time in early 2012 where inventories at this level or higher. With limited demand opportunities for non-PP derivatives of propylene and supply expected to improve with the end of TAR season coming soon, further increases in propylene inventories is the likely scenario.

We continue to hear reports of strong hedging activity in the propylene and polypropylene markets. This has been one of the key factors in keeping spot propylene prices supported.

On the polypropylene front, LBI announced Force Majeure on PP out of their Lake Charles location due to machinery breakdown. This is the fourth Force Majeure announcement from US based PP producers since the beginning of the year. Fortunately, the other three units have already been restarted. We have not yet heard the extent of damage to LBI’s Lake Charles PP line or how long it will be down.

This week also brought another price increase announcement by a PP producer calling for a $0.02/lb increase above and beyond the movement in monomer. Scheduled implementation is for April 1st. There are several other margin expansion type increase letters out in the marketplace. How much margin gets pushed through remains to be seen, but it is likely that producers will continue these attempts throughout the year.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: Buy as needed. The potential for price increases based on monomer movement appears to be limited. Improvement in monomer supplies, barring a rally in oil, could deliver lower prices in the near future. 60/90 Days: The direction of oil will be a factor in future prices. Demand trends for propylene derivatives will also play a role.

PVC is down $0.05/lb across Nov/Dec with a further decrease of $0.02/lb in January. February is looking flat as a further ethylene contract decrease is expected and demand has yet to overwhelm supply even with low operating rates in January.

The ethylene contract settled down $0.0725/lb in December and $0.03/lb down in January as spot ethylene averaged $0.02/lb lower in February as supplies are expected to continue to improve with capacity restarts.

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 expected close to flat as contract ethylene prices are expected modestly lower on improved supplies.

An increase in March will require a substantial improvement in demand (both export and domestic) ahead of the construction season to add to the supply restrictions from 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 even if they are delayed a month or two.

Export pricing bottomed out at $0.30/lb in late January, declining more than $0.05/lb in six weeks. Over the past five 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 cost is forecast down $0.01/lb.

Raw material costs are $0.08/lb to $0.09/lb below December 2013 levels. Pricing is up $0.04/lb over the same period before discounts, indicating a margin gain of $0.12/lb to $0.13/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.

Ethylene: February contract prices have not settled. January prices firmed at $0.3525/lb. The monthly average spot price is down ~$0.02/lb from January. Traditionally, the market likes to keep a $0.06/lb delta between spot and contract, which means February contract prices could possibly settle lower.

Chlorine: Spot prices have hit a bottom, and producers are pushing for increases. Soft downstream demand has kept availability ample, despite some minor supply issues. Prices will likely move modestly higher in March.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Leverage lower feedstock cost and the gap with export pricing along with slowed demand (seasonal & export) to offset planned supply constraints to block implementation of any increases while looking for discounts. Further 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 nominations while looking for roll back opportunities of more of the 2014 increases and keeping an eye on the impact of planned outages.

February PET contracts are not fully settled as there have been no official settlements in feedstock paraxylene and PTA.

Feedstocks are projected to settle close to flat and will continue to be the primary driver of PET pricing.

Oil prices have rebounded somewhat this month, but have also most recently dipped back down on reports of continued inventory builds.

From a demand perspective, things are going to pick up, whether it be pre-buying ahead of expected raw material increases or a standard seasonal uptick in downstream production.

Port issues on the west coast of the US have created backlogs of cargos, and has had an impact on domestic spot prices. This could add a little more pressure into final US contracts this month and into March.

The market in Asia was largely quiet this month in observance of the Lunar New Year. Demand in this region is likely to pick up next week. Depending on the strength, it could further impact the US market.

The uncertainty in the oil markets, and even the currency in Europe, has contributed unease in the spot markets. In Europe, spot material is no longer at a discount to contracts. And in the US, the prices are also coming closer together.

Offers for material in Asia are starting to come in about a penny higher after the holidays, but serious market activity has not returned.

PX: US contracts remain unsettled for February at this time. Spot prices had continued lower early in the month, but have since rebounded up roughly $0.03/lb. Contracts are projected to remain within a penny or two of the January settlement of $0.41/lb. Asia pricing is also stabilizing as upstream oil values have found some strength.

PTA: Pricing in Asia and the US have moved down consistently for several months following similar declines in feedstock paraxylene. Now, the spot markets are starting to bounce back. US contracts are not settled for the month, but will likely also be close to flat.

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. Naphtha values in Asia have been increasing, and will likely translate to higher EG costs in the coming months.

RTi PET Outlook and Suggested Action Strategies

30 Days: February PET prices are projected mostly flat from January. If flat or 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. However, any serious oil moves in either direction can take immediate control once again as the primary driver.

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