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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 27/04/2015 (18:01)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, in the PE market, strong exports, below average inventories, and global ethylene shortages are supporting the May $0.05/lb increase. Expectations of additional price increases may be forthcoming next week.

Latin American LLDPE and HDPE prices have reached the North American prices FOB supplier plants. LDPE resins are priced well below the North American prices. Without the ability to source from any other region, Latin America is expecting additional increases in May, providing the North American supplier with a very good option for any incremental volume.

SEA and China suppliers are selling ethylene at the polyethylene pellet price. Prices in this region for ethylene and polyethylene are above $0.60/lb. Steady naphtha prices are not driving the prices; lack of ethylene due to schedule maintenance continues to be the primary driver.

European buyers continue to look for material. There are seven FM’s in place in Europe. Sourcing from the Middle East is limited due to SEA demand and several supply disruptions.

Secondary market activity is strong and good material has been more difficult to buy. Prices pushed closer to the prime prices as buyers anticipated higher prices in May.

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.

RTi Polyethylene Outlook and Suggested Action Strategies

30/60 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. 90 Days: Potential correction in SEA prices following the planned maintenance season will be important to monitor. Buyers in SEA and China recognize the upward price pressure is ethylene supply driven and not demand. Lower potential prices and continued higher prices in Latin America may influence exports from North America.

In the PP market, contract PGP for April is currently at $0.43/lb, down $0.06/lb from March. We have yet to hear any nominations for May, but we are getting to that time of the month where a nomination should surface soon. Last week spot prices for propylene dropped significantly but have stabilized this week. Spot PGP traded at $0.3925/lb and was followed with bids at $0.395/lb. This is slightly higher than the low point reached last week and early this week. Spot RGP traded at $0.27/lb early in the week but more recently at $0.28/lb. If spot numbers stay at this level or move lower, we are likely to see a lower contract PGP price for May.

Refinery operating rates took a step back this week but have been trending higher overall. US rates are at 91.2% and PADD3 rates at 92.2%. Rates should improve into the mid-90s over the next several weeks. With RGP trading well below gasoline prices, we do need to watch for any steps refineries take to shift FCC yields to reduce propylene in favor of more gasoline. Metathesis margins continue to get squeezed with the lower propylene prices. Metathesis rate cutting will be a threat to propylene supplies unless we see ethylene prices move lower. We also see some monomer export deals getting fixed.

Propylene inventories continue to hold their own with a small build to 4.59 million barrels.

In polypropylene, several market players have indicated they are seeing slightly better availability.

However, we can also say that this is not being felt across the broad market. Certain producers are still behind on certain grades and melt flows, and this is creating issues for converters in some cases.
PP prices are down this month because of the drop in contract PGP, but the majority of the market is taking some form of margin expansion this month. For the most part, producers have been able to implement another $0.02/lb of margin expansion in April.

The situation does vary depending on how much expansion you have already taken and which suppliers you are dealing with and what type of pricing formula you may be using. Bottom line is that producers do have pricing power, and they are having success in raising margins.

Industry operating rates are averaging over 91% in 2015. The understanding is that improved margins will attract investment in new PP capacity. Formosa has indicated they are looking to expand their PP capacity but have not formally announced. It now looks like there is another PP supplier throwing their hat into the mix. Fernando Musa, CEO of Braskem America, says they are evaluating the possibility of adding new PP capacity as well as debottlenecking options at its existing operations.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: May monomer prices look to be flat to slightly lower, but we can see the markings of a market floor developing. Much will depend on whether we lose any supply and what happens from here on derivative demand such as PP. 60/90 Days: Prices will be at or near bottom. A continued rally in oil prices will provide support to prices. Market dynamics for propylene in Europe and Asia could also play a role as recent outages will come to an end and supplies improve.

In the PVC market, producers had nominated increases of $0.03/lb 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.

April and May nominations are shaky as outages are completed and supply/demand becomes balanced with expectations of well supplied on the horizon. To retain a balanced market, producers will need to step up exports through lower export pricing and get through the PE export jam in Houston.

Ethylene supply restrictions east of the Mississippi are easing in April with the restart of the Williams cracker at 2/3 of capacity. Other outages have moved spot ethylene up this week.

With ethylene contract pricing at a 5+ year low, expanded PVC capacity and exports looking for volume at a lower prices, it would seem unlikely for the April and May nominations to get traction unless we see exceptional seasonal domestic demand improvement.

The ability to retain the March increase will be tested down the road as feedstock pricing remains at lower levels.

Spot export trades continue to fall, now nearing the $0.38/lb level as Asian resin has been competitive in Latin America despite recent ethylene increases from outages in Asia.

Operating rates improved to above 83% in March as domestic demand moved up 5% and exports saw a 21% bump due to increased availability. More substantial demand improvement had yet to surface in March as housing starts were up modestly from a disappointing February.

PVC raw material costs in March are flat with April expected flat as ethylene supplies will continue to improve despite hiccups in production this week. Spot ethylene traded as high as $0.36/lb this week.

Chlorine prices remain a non-factor. Prices have been virtually flat for the month.

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 to block further increase implementation. Look to push out increases if needed till they fade away. 60/90 Days: As ethylene and PVC supplies strengthen keep an eye out for opportunities to roll back increases as export markets will demand lower pricing as outages overseas are resolved.

In the PET market, a $0.03/lb increase for April PET contracts has been announced. At this time, it appears that the majority of the market will see increases at about this level.

Although PTA contracts remain unsettled for April, BP is said to be implementing a $0.03/lb increase to formula prices. PTA has been tight and a limiting factor in PET production, which is coming under more pressure as demand picks up.

An inevitable increase in PTA contracts and higher EG prices, partly based on the high ethylene costs in Asia, are leading to expectations of higher PET raw material costs of close to $0.04/lb.

PX contracts also remain unsettled on the month, but are expected to see modest gains.

Assuming the PTA adjustment does make it into the market, the cost outlook for May is still likely to see market based increases due to strong global demand.

There are already nominations for additional $0.03/lb in May. This could potentially have some teeth, depending on how much buyers ultimately take this month.

Spot pricing has continued to move higher for several reasons including summer demand, weak supply (partly due to fewer imports), and higher feedstocks.

A couple of feedstock plant explosions in Asia have boosted pricing down through PET. This is also having an effect on the European market, which has also been seeing prices move up.

At this time, the global PET markets are facing upward pressure from a number of different sources.

This week, the USITC unanimously agreed to move forward with the anti-dumping case against Canada, China, India, and Oman. Although this is still a ways out from any real implementation, it is starting to have an effect on where importers are looking to source material.

RTi PET Outlook and Suggested Action Strategies

30 Days: Based on the recent global feedstock and demand increases, the North American PET prices are expected to see increases near $0.03/lb. The producers do have some justification, but anything above this amount is overkill. Buying ahead would be wise, as the downside appears limited. 60/90 Days: Upward pressure will continue in May, and most likely into June. This will be the peak demand season. Decreases are not likely in this timeframe and may not be seen until Q3.
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