Weekly Market Drivers for the USA
- Limited supplies of ethylene due to scheduled plant maintenance in SEA have firmed up the recent price increases in this region. If oil does not rebound before the maintenance projects are concluded, this region can expect another round of decreases.
- Lower SEA resin cost could open the import opportunities into Latin America again. North America has begun to recapture this export market due to the February increases in naphtha and the tight ethylene supplies.
- North America needs the exports to maintain a balanced inventory.
As of today, suppliers have not indicated any downward price moves in March.
Dow and Ineos are the only suppliers with a price increase announcement for April 1st. Other suppliers have not responded to this thoughtless attempt.
Secondary market availability is good and prices have firmed in March. The resin buying frenzy in the secondary markets have slowed as the prime and off grade price delta narrowed in March.
PE export volumes were up more than 10% from January. Although the overall volumes are still on the lower side of average, it does show that producers are meeting the global resin prices. The biggest improvement was seen in LLDPE – at near capacity operations, 20% of the material was sent to the export markets.
Ethane prices are stable just below $0.20/gal.
Spot ethylene prices were flat this ending near $0.34/lb. July 2010 was the last time ethylene prices were below $0.30/lb.
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 and have since firmed due to the tight ethylene supplies in SEA. Oil prices will be the leading indicator of resin price moves as scheduled maintenance is concluded. 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, contract PGP prices for March are settled at $0.49/lb, down $0.015/lb from February. Spot PGP traded earlier in the week at $0.4575/lb (APR). Subsequent offers were seen at $0.455/lb. Spot RGP was traded at $0.385/lb, followed by bids ranging from $0.345/lb to $0.355/lb and offers at $0.40/lb. The way things stand today, it appears that April PGP contracts can settle down by about $0.02/lb, but it is too early to call. The spot market feels like it wants to push lower, but it has been slow going. There is still plenty of time left in the month for markets to move, so we’ll have to see how things play out.
From a supply perspective, the market is still missing RGP supply from refinery and FCC outages. These outages are expected to clear up in the next couple weeks. With the USW strike largely over, hopefully delayed start-ups will be kept to a minimum. Propane and butane are still favored feeds at the steam cracker, so propylene supply from this source has been strong. Both metathesis and PDH supplies are incentivized to run as well. Propylene inventories reported by the EIA grew from 4.51 million barrels to 4.60 million barrels. Inventories are above the 5-year max for this time of year.
There are plenty of bearish signals to this market. We think that fundamentals will eventually kick in.
On the polypropylene side of the market, inventories were down 53 million pounds heading into March with 32.6 days of supply. Total demand is up 3.3% so far this year with domestic demand up 4.0%. This is a strong pace to start the year. We do think there is a portion of this that was a restocking effort by converters, so we will have to see if this pace can hold. Industry operating rates are averaging 89.4% despite the Force Majeure events that have already taken place this year.
We are seeing some mixed signals on the availability side of polypropylene. In certain cases we are hearing of sold out conditions heading into April. In other cases, we are seeing cars become available where they were not just weeks ago. It appears to be grade specific and even supplier specific for that matter. Copolymers do seem to be tight on a fairly market wide basis. We have also heard that P66 continues to have difficulty out in NJ, and that is causing issues for their customers. Overall, we need to expect that the PP market is going to be tightly balanced more often than not as operating rates have increased steadily for the past several years.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: Buy as needed. The threat of higher prices in the short term is minimal, and the potential for lower prices is likely from a monomer cost standpoint. PP price increases from a margin expansion perspective are possible but not consistent throughout the industry. 60/90 Days: Monomer supply is healthy with refinery supply expected to improve. Barring a rally in oil prices or an unplanned outage in supply, we think lower prices are ahead.
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.
Spot ethylene is seeing a $0.20/lb premium east of the Mississippi as Evangeline pipeline from Texas is out till mid-year and the Williams cracker is not expected to be operational till Q2.
Shintech has completed their maintenance. Axiall and Oxy are starting theirs, the last in a series.
Any increase in March is getting some support from tight supplies that has elevated limited spot export trades to the $0.39/lb level. This suggests that we could see pressure to implement a $0.01/lb to $0.02/lb, if not in March, then in April.
Demand improvement is expected to coincide with the end of maintenance in April.
Back to back increase nominations are designed to prevent margin erosion and translate that into a margin gain if supplies prove tight enough.
PVC raw material costs in February cost is down $0.005/lb. March and April are forecast flat to down with upward pressure from chlorine offset by lower pressure from ethylene.
Ethylene spot prices are stable (~$0.34/lb). The Evangeline pipeline is expected to be back online within a week.
Chlorine pricing was also flat this week. Upward movement is possible in April with strengthening demand and relatively tight supply.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Leverage low feedstock cost and end of maintenance in April to minimize complaints of tight supply that are more relevant to the export market than to the domestic market. 60/90 Days: As ethylene and PVC supplies strengthen, look to push out/minimize increase nominations while keeping an eye out for opportunities to roll back margin increases from last year as export markets are returning to more competitive levels.
March PET contracts are seeing upward pressure, with at least one producer looking for a $0.04/lb increase from February.
Paraxylene contracts remain unsettled for the month, but the spot movements have been trending lower after peaking during the first week. The overall spot average is virtually flat from last month, so there will be less pressure on the contract price.
If the PX contract price were to settle up a few pennies, as initially projected, PET pricing will see upward movement. MEG prices are up in Asia, as well as the US, and PET demand is picking up globally.
Although producers are seeking $0.04/lb, the estimated production cost increases are only up $0.02/lb to $0.03/lb at this time.
After bouncing back up above $50/bbl, WTI crude oil prices have moved down to the low/mid-$40’s. This movement has at least temporarily put a stop to the consistent increase in feedstock and PET prices in Asia.
Warmer weather is arriving in the US, and is likely to bringing some strong seasonal demand along with it. As the demand does improve, 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.
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. April could see further increases, but oil will continue to be a big factor. If prices stay where they are at now, the primary driver will be demand. And at this time it is unclear what is pre-buying before expected increases and what is true demand.
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