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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 16/03/2015 (18:12)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, in the PE market, inventories slightly increased in February: HDPE down 23 million, LDPE down 29 million and LLDPE up 72 million for a total gain of 20 million pounds. Total February PE inventory levels are at the highest in over five years.

Export activity was back to near normal levels of 20% of production as suppliers accepted new global prices. Exports are essential for the suppliers to maintain the supply and demand balance in North America. LLDPE and LDPE exports were very strong. (See RTi Inventory Report 3/12/2015)

SEA LLDPE prices increased as much as $0.06/lb since February: $0.56/lb to $0.58/lb. Tight supplies of PE are being reported in this region.

Cost to produce pellets in SEA is up $0.07/lb since January. Naphtha is up from $400/mt to $550/mt since January: $0.065/lb.

LA prices are the same price as SEA prices. Therefore, Latin America will be returning to the NA export market again to consume NA pounds.

NA off grade type of PE has bottomed and continues to stay flat or slightly increase from February. Resin availability is reported as fair to good.

Latin America could impact North American pricing if SEA cost continues to rise. There has been an historical delta of NA prices at about $0.07/lb to $0.10/lb over the SEA pellet price - that delta is closing.

Ethane prices are stable just below $0.20/gal.

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

Ineos and Dow have pending $0.04/lb increases for March 15th and April 1st. No other suppliers have recognized this action.

RTi Polyethylene Outlook and Suggested Action Strategies

30/60/90 Days: Middle East, China and Southeast Asian prices have increased the first two weeks 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, March PGP contract pricing began to settle late this week at down $0.015/lb. As of this writing, it was not a market-wide settlement but was gaining traction. This would put March contract prices at $0.49/lb. Spot PGP is being valued right around $0.46/lb with recent offers seen at $0.465/lb. Spot PGP values at this level are consistent with a contract price of $0.49/lb. Spot RGP traded via rail at $0.385/lb. The RG-PG spread is roughly $0.10/lb, which is keeping splitter margins very healthy.

Crude oil has moved lower this week. Values of Friday were seen at $45.19/bbl. This is down roughly $5/bbl from February average prices. Oil production in the US continues to grow despite $50/bbl crude prices and lower rig counts. Oil inventories also continued to build this past week, reaching record levels.

Propylene inventories also built with EIA numbers growing from 4.459 million barrels to 4.515 million barrels. Inventories have broken through their 5-yr. max level for this time of the year. Refineries rates remain low at 87.8% (US) and 87.2% (PADD3). We also have several large FCC’s that remain offline and not producing RGP. Current estimates are for these units to begin restarts in the 2nd half of March.

Also helping matters is the fact that the USW struck a tentative four-year deal with Shell. Outside of the supply limitations for propylene from the refinery side, Supply from other sources has been good.

Propane and butane are advantaged over ethane as cracker feeds. PDH and metathesis economics are also incentivized to run.

On the polypropylene side, it has been reported that Braskem has taken their Marcus Hook, PA plant for maintenance. It will remain down throughout the rest of March at least. We have also heard that LBI has restarted their downed line at Lake Charles. Polypropylene inventories were down by 53 million pounds heading into March. February PP production came in stronger than January despite the Force Majeure events that were in place at the time. PP demand also was reported strong by the ACC. For the first two months of 2015, domestic demand is showing growth of 4.2% relative to 2014 averages.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: Buy as needed. Prices will be down slightly in march with the lower PGP contracts, but we still see plenty of downside left as monomer supply is expected to improve in the coming weeks. 60/90 Days: At the moment, there does not appear to be any major threats to higher prices from a cost push perspective. It is possible that PP producers have some success in implementing further margin expansion into prices, but any success here should be off-set by lower monomer prices. A rally in oil prices could change this outlook, but oil is currently pushing lower.

February PVC pricing held flat as producers kicked 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.

Ethylene is higher priced east of the Mississippi as the Evangeline pipeline from Texas may be out till mid-year and the Williams cracker still struggles to get up and running.

Shintech has completed their maintenance. Axiall and Oxy are starting theirs, the last in a series.
Any increase in March will require 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 prevent price erosion and retain margin growth gained last year even if they are delayed a month or two.

Export pricing has steadily increased since the start of planned maintenance, approaching the $0.38/lb level last seen in November as limited material was readily available for export with some support from higher priced oil and overseas ethylene

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

February ethylene contracts settled down a half penny from January at $0.3475/lb. Spot prices have been largely stable for the past month, with recent trades at $0.34/lb.

PVC production output increased 4% in February despite the shorter month and planned maintenance, approaching 85% capacity utilization. Exports fell 13% to their lowest level in ten months as domestic demand increased 3% leading to an inventory build of 4%.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Leverage lower feedstock cost and end of maintenance in April to offset defensive price increase nominations. Look for discounts on excess resin while the export markets are still in recovery. Export market price increases have been inflated by limited availability despite decreasing overseas cost from the reversal of oil prices.60/90 Days: As ethylene and PVC supplies strengthen look to push out/minimize defensive increase nominations while keeping an eye out for opportunities to roll back margin increases from last year.

March PET contracts will see the first bit of upward pressure since August.

February PET contracts are close to flat, depending on the situation.

Spot prices have rebounded, and are increasing up towards contract levels.

US paraxylene fully settled up $0.01/lb in February. Spot prices had been trending higher, but have seen some relief this week. March settlement could be up a few pennies at this point.

PTA contracts settled up accordingly, increasing about $0.067/lb.

Ethylene glycol prices are also trending higher in the US and in Asia.

March PET production costs are projected up roughly $0.02/lb at this time.

As feedstock costs start to rise, and summer demand season nears, March is projected to have a strong showing of demand. This process is already beginning in Europe and Asia.

As the demand does improve in the US, supply should no longer be an issue: − PTA production is no longer a threat.

− The euro is weak and turning off imports from other regions.
− The West Coast ports are clearing up and should not cause any serious delays going forward.

Feedstock and resin supply in Asia is strong, and demand is improving. Prices are continuing to trend upwards.

RTi PET Outlook and Suggested Action Strategies

30 Days: March feedstock contracts are not settled, but are projected higher at this point. This will need to be watched carefully, as well as strength of demand in the US and Asia, and will determine how much material would be worth buying. 60/90 Days: There is not a lot of downside potential going forward, unless the current demand is not sustainable. Any serious oil moves in either direction can take immediate control once again as the primary driver.
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