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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 20/04/2015 (17:38)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, the polyethylene markets are facing a new potential increase of $0.05/lb effective May 1st. Every major PE supplier has announced a price increase for May 1st. Suppliers are not withdrawing as the increase attempt becomes more likely.

There is speculation suppliers may attempt an additional increase to take advantage of global price hikes.

Southeast Asia and China prices have increased as much as $0.10/lb since early March due to tight ethylene supplies in SEA and Europe. Spot ethylene in China and SEA are selling near the PE price. The ethylene margins in China and SEA are very good.

Latin America has returned to the NA supplier again for resin requirements. Thailand and Korea are not offering resin to LA. Export prices in May could be above $0.60/lb. The Latin America processors’ supply options have been reduced to primarily North America. Continued demand could be the driver for more price increases in North America.

Secondary market availability is good and prices this week are higher than last week.

After seven monthly increases in a row, there was an inventory draw in March of 141 million pounds, according to preliminary data (HDPE -112; LDPE -14; LLDPE -15). Cumulative inventory levels still remain on the high side of average.

HDPE and LLDPE were the highest on record. Domestic demand topped one billion pounds, with exports also at very healthy volumes.

Operating rates were maxed out, which helped prevent a large inventory draw, keeping it at only 15 million pounds.

In March, exports represented 22% of all polyethylene produced in the US & Canada, up roughly 4% from February. Total volumes were up 32%, with nearly 750 million pounds exported.

North American feedstocks continue not to influence prices. Cash cost to produce ethylene remains below $0.09/lb and the cost to deliver pellets in NA is still under $0.30/lb.

Europe is experiencing supply concerns. There are currently 7 declared FM in Europe, creating a very tight supply position on both ethylene and PE. Ethylene prices have disconnected from naphtha and are being pulled higher because of the material shortage. Prices are expected to continue upward.

RTi Polyethylene Outlook and Suggested Action Strategies

30 Days: Export activity and price increases in Latin America are influencing the North American price. Incremental volume is now exported at a price equal to the NA price; NA price increase attempts will very likely be successful in May. The outcome of the price increases and additional increases depends heavily on the price of oil based pellets made from naphtha and the tight ethylene supplies in other regions due to planned maintenance. At this moment, the suppliers are very likely to implement the increase May 1st. Prices are not retreating in April or May and inventories should be managed with upward momentum consideration.

In the PP market, PGP contract prices for April settled down by $0.06/lb putting PGP prices at $0.43/lb. Since the settlement, spot propylene has continued to move lower with both RGP and PGP hitting new lows. Spot RGP has traded several times over the past week starting with a transaction at $0.29/lb and hitting as low as $0.265/lb by weeks end. Spot PGP traded as low as $0.385/lb. Based on these numbers, the May contract PGP price would settle lower by at least two cents. US PGP prices have now moved into the low cost position around the globe. PGP prices in the Far East as well as Europe are right around the $0.46/lb level.

As propylene prices move lower, we will start to see market correcting forces come into play. On the demand side, we hear that the phenol chain is beginning to pull on propylene, and we also expect acrylonitrile to begin pulling more pounds as well. We have also heard that a couple cargoes of propylene are being looked at for export into Latin America. On the supply side, metathesis economics are getting close rate cutting levels, and propane cash costs at the cracker have moved slightly above ethane. Butane still remains advantaged. We are not seeing any major shifts in feed usage or any rate cutting, but we are getting close to where these things could become a factor.

Refinery rates continue to move higher as seasonal maintenance comes to a close. Rates for the US moved from 90.1% to 92.3%. PADD3 rates moved from 91.1% to 92.8%. This should provide some improvement to monomer supplies from this source. Propylene inventories reported by the EIA were steady at 4.55 million barrels. Right now, spot prices are falling and May looks like another drop for contract prices, but market balancing needs to be watched closely, especially exports which could clear product rather quickly.

Polypropylene production issues have plagued the industry since the beginning of the year with four Force Majeure announcements during that time. Most of these issues have been solved except for P66 which continues to have issues in Linden, NJ. Contrary to what the production issues would suggest, the industry has been running at an average 91.2% operating rate through Q1 with March coming in at 95.2%. Inventories also built by 82 million pounds in March.

The reality that most converters see is that availability remains tight and many producers continue to limit contract sales to minimum levels. Many producers are attempting to implement another $0.02/lb of margin expansion in April. It does appear that they are having some success with this attempt.

Overall, PP prices will be coming down in April based on the $0.06/lb decrease in monomer, however, a good portion of converters will only see their PP prices down $0.04/lb.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: Buy as needed as prices are on a downward trend, however, if your stocks are in need of some replenishment, it doesn’t hurt to buy extra material at April prices. 60/90 Days: We do see potential for monomer prices to move lower, but we also need to watch for signals indicating a market bottom is forming.

In the PVC market, producers have nominated increases of $0.03 for March, $0.03/lb for April and $0.02/lb for May.

The March nomination has been largely implemented based on tighter supplies from maintenance outages, even as feedstock was flat due to an ethylene decrease offset by a chlorine increase.

Ethylene supply restrictions east of the Mississippi are easing in April with the restart of the Williams cracker at 2/3 of capacity.

PVC maintenance outages are concluded as of this week with Oxy completing their outage.

With ethylene contract pricing at a 5+ year low, expanded PVC capacity and weakened export demand, it would seem unlikely for the April and May nominations to get traction unless we see substantial gains in demand either to export or exceptional seasonal domestic demand improvement.

The ability to retain the March increase will be tested unless a return to full operations can find offset in the export markets along with construction demand.

Spot export trades continue to fall, now below the $0.39/lb as Asian resin is still proving more competitive in Latin America despite recent ethylene increases.

Substantial demand improvement had yet to surface in March as housing starts were up modestly from a disappointing Feb. despite the end of severe winter weather. Pipe is moving, but yard stocks are ample.

PVC raw material costs in March are flat with April expected flat to down as ethylene supplies continue to improve.

As opposed to Europe and Asia, ethylene pricing in the US is continuing flat with current spot trades at $0.35/lb. March contracts settled down another $0.005/lb at $0.3425/lb.

The quiet chlorine market continues, with minimal activity this week. Prices remain low. If downstream demand improves over the coming months, this could push up prices higher.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Leverage low ethylene cost and market share as supplies increase along with producer interest. Lower export pricing will act as a drag on further increase nominations. 60/90 Days: As ethylene and PVC supplies strengthen push out 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.

In the PET market, a $0.03/lb increase for April PET contracts has been announced.

Final PET production costs for March ended just over a $0.015/lb increase from February.

April feedstock contracts are not settled. March PX contracts settled up $0.02/lb at $0.44/lb.

BP has announced a $0.03/lb increase on PTA contracts. PTA for March settled at $0.42/lb, up only $0.02/lb since January.

Ethylene glycol prices are trending higher, particularly in Asia. Ethylene prices alone have gone up more than 40% YTD as oil had shown some stability and as cracker outages persist.

EG increase of $0.02/lb has been announced for May in the US.

Production cost estimates for April PET are projected flat to down slightly. With a PTA increase factored in though, there will be more pressure on PET prices for close to the $0.03/lb increase announced.

Spot PET pricing is up this week on strong demand.

Seasonal demand is starting to pick up. This year is projected to be pretty solid as gas prices remain fairly cheap, leaving more income to be spent inside convenience stores on bottled drinks.

The PET and feedstock markets in Asia are continuing to see upward pressure after an explosion at an aromatics plant in China. This has at least temporarily boosted the spot markets.

PET prices moved up again in Europe this week for all the same reasons - 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. The results are unknown at this time, but at least have some market participants coming up with alternative sourcing options.

RTi PET Outlook and Suggested Action Strategies

30 Days: Depending on your March price, decreases in April are not likely going to be easy to come by. Global feedstock costs are moving higher, and demand is healthy in major regions. This will likely give producers leverage for some small increases. 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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