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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team -
  • 06/04/2015 (16:03)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, in the PE market, March polyethylene prices finished flat, unchanged from February. PE prices have fallen $0.16/lb from the October 2014 peak.

Exxon announced a $0.05/lb increase for May 1st. Exxon has been the major supplier that has positioned price increases and decreases very timely. Almost every other supplier has followed, moving their pending increases to May 1st.

Recent tightness in ethylene supplies in SEA and China has increased prices in the region. Naphtha prices have again increase; from $500/MT to $540/MT in sync with very tight supply of ethylene.

Prices in SEA and China have increased $0.07/lb from February and more increases are expected.

Latin American prices will increase due to the events and the price increases in SEA. North American suppliers will take advantage of any opportunities to move incremental volume to balance inventories.

Secondary market availability is good and prices have firmed in March. The resin buying frenzy in the secondary markets in March was strong, but not as strong as February as the prime and off grade price delta narrowed in March.

North American feedstocks continue not to influence prices.

PE export volumes were up more than 10% in February 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: March ethane prices remained very stable from February, along with natural gas. Therefore, the cost to produce ethylene in the US is low, averaging under $0.08/lb for the past couple of months.

Ethylene: March contract prices remain unsettled, but a slight decrease is possible based on the average spot price movement over the month. February contracts settled down a half penny at $0.3475/lb.

RTi Polyethylene Outlook and Suggested Action Strategies

30/60 Days: Export activity and price increases in Latin America will influence the North American price. If incremental volume can be exported at a higher price or a price equal to the NA price, NA price increase attempts may be successful in May or June. The outcome of the price increases depends heavily on the price of oil based pellets made from naphtha and the tight supplies in other regions. The costs need to be closely watched to determine NA buying decisions in April. Prices are not retreating in April or May and inventories should be managed with upward momentum consideration.

In the PP market, Formosa has issued a letter indicating a $0.02/lb PP margin increase over monomer effective April 1st. This reinforces the continued attempt as other producers are also referencing older letters calling for the same.

Contract PGP prices for March are settled at $0.49/lb, down $0.015/lb from February. There were multiple spot PGP trades recently in a range of $0.41/lb to $0.425/lb.

The significant drop in spot PGP will change the discussion around the April contracts. It is still early in the month, but this opens up potential for a $0.05/lb to $0.06/lb decrease.

Spot RGP prices have been valued in the upper $0.30/lb range. The market has been very quiet, with limited activity. The latest bids are for $0.30/lb, with the last offer at $0.37/lb – a pretty significant disconnect, but an indication of a lower market value.

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 4.6 million barrels to 4.7 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 PP 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 $0.02/lb for May.

The March nomination is seeing some support from ethylene supply restrictions east of the Mississippi and maintenance outages. All but one of the outages is completed going into April.

With ethylene pricing at a four year low, expanded PVC capacity and export demand subject to a need for higher oil prices, implementation of the full $0.03/lb is considered a reach, with $0.01/lb to $0.02/lb seen as more realistic despite lower operating rates since the beginning of the year.

Even if increases are implemented, the ability to retain these increases will be severely tested once operating rates increase in April and beyond.

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 and Axiall have completed their maintenance. Oxy is still in process.

Any increase in March is getting some support from tight supplies that have elevated limited spot export trades above the $0.40/lb level.

Demand improvement is expected to coincide with the end of the more severe winter weather. Although pipe is moving, yard stocks are ample.

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: March contract prices remain unsettled, but a slight decrease is possible based on the average spot price movement over the month. February contracts settled down a half penny at $0.3475/lb.

Chlorine: Spot prices have moved up in March, but still ultimately remain among the lowest levels in a couple of years. The market has been mostly quiet.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Leverage low feedstock cost and market share as the end of maintenance in April will increase availability along with producer interest. The export market, although increasing in price, is still seeing demand suffer from lower cost ethylene overseas from lower cost oil. 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 increases as export markets are expected to continue at lower levels than last year.

March PET contracts are seeing mostly upward movements. Producers were looking for as much as a $0.04/lb increase from February. However, an increase of this magnitude has yet to be seen.

Final PET production costs for March are expected to end up as much as $0.02/lb. Feedstock contracts are not yet finalized though.

Another PET increase has been announced for April of $0.03/lb.

The demand picture at this time is unclear. Some of it has definitely been pre-buying before expected increases, so it is difficult to tell where true demand is. As there was no real margin build in March, seasonal April demand is going to have to pick up considerably to break away too far from the cost moves.

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 not a significant 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.

In Europe, the same story for PET continues. Prices are gradually moving higher due to improved seasonal demand, weak currency, and generally trending higher feedstock prices.

Three major US producers have filed an anti-dumping claim against imported PET from China, Oman, India, and Canada. RTi will continue to follow the investigation.

PX: Paraxylene contracts in the US remain unsettled for the month, but the spot movements have been trending lower after peaking during the first week. The overall spot average in March was down slightly from February, so there will be less pressure on the contract price.

PTA: Pricing in Asia has moved up slightly on tighter supply as well as higher feedstock paraxylene pricing. The US contracts have also not officially settled for March, but are projected to finalize at a slight increase from February.

EG: As naphtha and oil prices had showed some resilience in March, so did ethylene glycol prices. The market moves in Asia impact the contracts in the US, so both regions moved accordingly.

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. April could see further increases, but oil will continue to be a big factor. 60/90 Days: There is not a lot of downside potential going forward, unless the current demand is not sustainable. If oil prices stay where they are at now, the primary driver will be demand.
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