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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 09/03/2015 (16:35)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, in the PE market, RTi views two key drivers in March that will determine resin markets: naphtha based pellet costs and secondary market availability.

Naphtha prices continue to increase the global costs of ethylene and polyethylene. The cost to produce a naphtha pellet has increased approximately $0.07/lb since early January. Latin America, China and SEA prices have increased as much as $0.02/lb.

Secondary market activity in February was very strong. Prices for most off grade resins increased at least $0.02/lb. Off grade prices continued to reduce the prime versus off grade delta. If March activity continues, the spread will also be reduced further, creating a balance and floor for resin pricing in North America.

Traditional export activity may restart as global prices increase. March offers for exports to Latin America from Korea and the Middle East have increased $0.02/lb.

Ethane prices are stable just below $0.20/gal.

Spot ethylene prices decreased slightly this week ending near $0.34/lb. July 2010 was the last time ethylene prices were below $0.30/lb.

Inventory and export data will be available next week.

Ineos and Dow have pending $0.04/lb increases for March 15th and April 1st.

RTi Polyethylene Outlook and Suggested Action Strategies

30/60/90 Days: Middle East, China and Southeast Asian prices have increased the first week of March. 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 North American prices to firm by April, with very little chance of short term 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 at $0.505/lb, up $0.01/lb from January contract prices. March PGP contract prices have been nominated up $0.015/lb but have yet to settle. Spot propylene, over the past week has started to show some weakness. Last week PGP traded at $0.475/lb. This was followed by paper trades this week at $0.455/lb and $0.46/lb. We also had a transaction for physical at $0.45375/lb. Late this week PGP was being offered at $0.47/lb with no bid. Spot RGP has been quieter with bids at $0.395/lb but not much transacting.

If we call spot PGP $0.455/lb and add the typical $0.025/lb spread between spot and contract, we get an implied March PGP contract price of $0.48/lb.

WTI oil prices have been rather stable right around the $50/bbl mark. Friday, WTI dipped below the $50/bbl mark. Oil at $50/bbl has yet to curb supply. US oil production continues to grow and inventories of oil continue to grow. In fact, oil inventories are roughly 70 million barrels above the 5-year maximum for this time of year.

An interesting data point - the last time PGP was at $0.505/lb was in August of 2012. The difference being that oil was at $94/bbl, $44/bbl above where oil is now. It was clear at the time that propylene was undervalued as a result of high propylene inventory levels. In looking at current inventory levels we are at (or near) the levels we had at the time leading up to August 2012. Also consider that inventories continue to grow right now with supplies expected to improve. Does this mean propylene is about see a big price response to the downside? We will see soon enough.

Propylene inventories (EIA) grew again up to 4.46 million barrels. This is the highest level reported by the EIA for this time of year and levels are about to break above the 5-year max with further builds. Refinery rates dropped this past week from 87.4% to 86.6% (US) and from 88.2% to 87.8% (PADD3). This is evidence that we still have some operational issues at the refinery/FCC level. Nevertheless, refinery outages should be clearing up over the next several weeks with improvements in rates to follow. Steam crackers continue to see some minor setbacks. Shell and CPChem reportedly had some operational issues this past week, but no extensive outages are expected. Williams continues to struggle in their restart.

On the polypropylene front, LBI’s Force Majeure at their Lake Charles location has not had a dramatic impact on supply to this point. We have heard their line could down as little as three weeks and as much as several months. We are trying to clarify the extent of this event. In general, polypropylene supplies remain tight, but we noticed that availability has improved in certain spots. Several producers have reached out to customers increasing their allocation of cars available for March. This seems to be grade specific and not market wide but still an improvement from recent weeks.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: Buy as needed. The potential for price increases based on monomer movement for March is minimal. We see March as flat to down with most PP prices following this movement. 60/90 Days: The outlook for monomer supply looks promising. This should keep prices from creeping higher from a monomer perspective.

February PVC pricing is flat as producers kick increase nominations down the road by a month putting nominations at $0.03/lb for March, $0.03/lb for April and in at least one case $0.02/lb for May.

Producers continue to bank on restricted supply from plant maintenance, increased demand even as ethylene costs are at more than a four year low.

The ethylene contract settled down $0.005/lb in February as spot ethylene averaged $0.02/lb lower in February and another $0.01/lb lower in March so far. Supply recovery is still not completed at Williams and the pipeline remains out.

Shintech is completing their maintenance. Axiall and Oxy will be starting theirs this month.

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.

Back to back increase nominations are designed to retain margin growth gained last year even if they are delayed a month or two.

Export pricing over the past six weeks has rebounded to break the $0.36/lb level as less material was readily available for export and pricing has moved upward overseas following ethylene and Brent crude pricing that has widened the gap from the lower priced and oversupplied WTI crude.

PVC raw material costs in February cost is down $0.005/lb. March is forecast close to flat with potential upward pressure from chlorine but lower pressure from ethylene.

February ethylene contracts settled down a half penny from January at $0.3475/lb. Spot ethylene prices have moved down this week just under $0.34/lb.

Spot chlorine prices moved up slightly this week on higher downstream demand, but prices are still low.

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 and defensive price increase nominations. Look for discounts on excess resin while the export markets are still in recovery. Further export market pricing increases will be limited by relatively low cost overseas from oil. 60/90 Days: As ethylene supplies strengthen and export PVC demand sees some improvement, look to push out defensive increase nominations while looking for roll back opportunities of the 2014 increases and keeping an eye out for un-planned outages.

Upward pressure appears to be mounting in the PET markets. While February PET contracts are settling close to flat, March could see some modest increases.

Once a full paraxylene contract settlement is complete for February, more clarity will be available for March. There was one initial settlement at $0.42/lb, representing a $0.01/lb increase from January. A higher settlement is possible based on the spot markets and the strengthening that occurred in upstream oil prices.

So far in March, spot PX pricing is up slightly from the average in February, so depending on that final settlement, there might not be too much lingering upward pressure.

PTA prices will follow PX. There should be no surprises here as supply issues are expected to be completely resolved by the end of the month and are already a non-issue at this time.

Ethylene glycol prices have been showing some strength, particularly in Asia where naphtha prices have shown a strong rebound.

Ultimately, PET production costs appear to have bottomed out. At this time, it looks like we could see increases of roughly $0.03/lb over the next few months.

Domestic PET demand is expected to strengthen in March as seasonal demand makes an appearance. In addition, spot material from Asia has been less available due to logistical issues and will put more pressure on domestic supply. However, the US has plenty of capacity at this time.

Labor issues at the West Coast ports have been resolved, but there is still a backlog of cargos that will take a few weeks to get straightened out.

The PET markets in Asia have improved this week as buyers return to the market from holiday. Although, the region is likely to remain well supplied as logistical issues to the US and a weak Euro have reduced attractiveness in the global market.

On a US dollar basis, Europe has very attractive PET pricing. Even with a slight improvement in demand and a higher PX settlement for March, spot and contract material is still quite a bit cheaper than the US, and approaching prices in Asia.

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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