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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team -
  • 11/05/2015 (15:25)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, the PE market enters May with a $0.05/lb increase in place. Regardless of being the lowest cost resin producer on the globe, several key global drivers support this increase:

Tight supply of polyethylene in Asia and Europe.

Tight supply and high cost of ethylene in Asia and Europe.

Higher global feedstocks driven by oil price increases.

Export price increases in May. Price points are very close to domestic prices.

Above average exports to Latin America, Asia and Europe due to all previous conditions.

North American resin sales in April were very strong due to the pending price May increase. The resin market should expect an inventory draw due this activity. It is important to recognize the draw from pre-buying is not demand driven, and will balance out over a 30-60 day period.

Above average exports, and the potential of May and June exports, will be the key to the inventory balance. Sustained above average exports will reduce inventories for an extended period of time.

Ethane and ethylene prices remain steady. Both ethane and spot ethylene prices have ranged within

$0.02 to $0.04 since January 2015. This is the least volatile first four months of the year in many years.

The secondary market was inactive this week due to the heavy April pre-buying activity. Prices already experienced increases in April and should remain firm in May/June.

RTI Polyethylene Outlook and Suggested Action Strategies

30/60 Days: No Changes from May 1st Outlook

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 May.

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, PGP contracts for May are starting to see some settlement discussion. The initial rumblings are that some buyers and sellers are agreeing to a down $0.01/lb settlement. This is not market wide at this point. Should the final settlement end up down $0.01/lb, this would put May PGP at $0.42/lb.

Spot propylene is actually seeing some upside in recent days. After dropping $0.07/lb to $0.08/lb from late March to early April, spot PGP has gained about $0.03/lb from the low. This morning, spot PGP traded at $0.40/lb. Spot RGP has also gained some ground trading late this week at $0.315/lb. The $0.40/lb spot PGP trade would indicate only a down $0.005/lb settlement is warranted based on typical spreads.

Whether US PGP prices for May end up at $0.42/lb or not, US PGP prices are the lowest around the world. EU PGP contract prices for May settled at €990/mt ($0.499/lb) and EU spot PGP is trading at €1,025/mt ($0.523/lb). PGP prices on a FOB Korea basis are $999/mt ($0.453/lb). Propylene outside of the US is extremely tight, and this is part of what is lending support to US prices. There are rumored to be two cargoes of propylene being exported to Europe, and there are also some exports of propylene derivatives that are creating some demand pull. The tightness propylene is seeing outside of the US is largely due to planned and unplanned outages. Once these issues start clearing up, global market dynamics should start to balance out.

Propylene inventories in the US remain healthy with EIA reporting a build from 4.76 million barrels to 4.95 million barrels. The US is likely losing some supply from metathesis as economics call for rate cuts. On the other hand refinery rates continue to improve and propane and butane are both favored over ethane as cracker feeds. It does appear that propylene is experiencing a short-term bottom, but that could change once global supplies begin to improve over the next 30-60 days.

Demand for polypropylene continues to perform strong in early 2015.

Preliminary data from the ACC just came out. It shows that April was another above average month with an inventory draw of 71 million pounds. Further details to come on production and inventory levels.

Despite the inventory draw, the PP market feels like supply is improving. There is still some fundamental tightness in the market, but there are clear signs of better availability for many grades of PP. This may be more of a testament to May’s demand levels.

The industry is running at a 91.0% operating rate which is the highest in recent history. Producers do carry pricing power which is evident in the level of margin expansion they have been successful in implementing. There are new letters from most of the major PP producers in the US calling for further margin expansion ranging from $0.02/lb to $0.04/lb on June 1st.

RTI Polypropylene Outlook and Suggested Action Strategies

30 Days: Prices in May are the lowest the US has seen in years. There are signs that May could be the market bottom, at least in the short term.

60/90 Days: Global propylene supply should improve during this time frame. This could lead to lower prices, but demand trends and oil prices will be key factors as well.

In the PVC market, nominated increases March through May of $0.08/lb have seen realization only in March for $0.03/lb as May is trending flat to modestly down as export pricing moves lower and supplies improve after the maintenance season.

Export demand has been on the weak side as domestic demand has been slow to improve as much as anticipated.

Higher ethylene overseas due to Q2 outages is not helping PVC exports as much as expected. Export prices are moving lower, creating a downward pull on domestic pricing.

Domestic demand suffered from a lack of GDP growth in Q1 and difficult winter weather. We are still expecting an improved construction market from last year, but nothing the PVC suppliers can’t handle.

Shintech has announced the construction of 1 billion lb ethylene cracker in Louisiana to open in 2018.

Spot export trades continue to fall, now below the $0.37/lb level as US exporters are looking to replace Asian resin that had been competitive in LA prior to cracker 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.

PVC raw material costs are expected flat to down fractionally for the remainder of the quarter at levels 15-20% below Q4 2014.

Ethylene contract pricing for April remains unsettled. There are rumors that a two-month settlement is possible. Spot prices are up slightly, just above $0.36/lb.

Chlorine prices remain stable, and are only likely to see increases if downstream demand picks up.

RTI PVC Outlook and Suggested Action Strategies

30 Days: Leverage low average raw material cost vs last year, and improved availability as supplies increase along with producer interest. Lower export pricing will add downward pressure.

60/90 Days: As ethylene and PVC supplies strengthen, pursue opportunities to roll back increases as export markets will demand lower pricing when outages overseas are concluded.

April PET contracts are up as much as $0.04/lb, which covers the majority of the cost increases.

Producers have nominated an additional $0.04/lb increase for May based on stronger demand and spot feedstock pricing moving up in both the US and Asia. At this time, the cost to produce PET in May is projected at a roughly $0.02/lb increase over April.

PX contracts for April settled up $0.015/lb at $0.455/lb. Spot prices have been trending higher, partly influenced by the market in Asia – where there was an explosion at an aromatics plant. May PX in Asia settled near $0.42/lb.

In addition ethylene prices are up significantly in Asia. Although starting to ease, this has led to higher EG prices, which directly factors into US pricing. With strong seasonal and restocking demand, cost increases are expected to be passed through in most cases.

Margin gains are possible for producers as imports have been pared back, downstream demand is strengthening in preparation for the summer, and supply of feedstock and resin is becoming limited.

Spot PET is still available at below-contract levels, near mid to low $0.60s/lb.

PET plants in Asia are running strong to fill healthy demand, with prices up another penny this week.

Europe is also seeing higher pricing down the chain, as well as tighter supply from fewer imports.

The USITC unanimously agreed to move forward with the anti-dumping case against Canada, China, India, and Oman. Preliminary countervailing duty determinations are expected around June 3, and preliminary anti-dumping duty determinations are expected around August 17.

RTI PET Outlook and Suggested Action Strategies

30 Days: At this time, strong demand and higher feedstock costs point to an increase in May. The month has just started, but there would have to be a considerable reversal to change the outlook. If spot feedstocks continue higher over the next week or so, it might be worth buying extra.

60/90 Days: Upward pressure will most likely continue into June. This will also be the peak demand season. Decreases are not likely in this timeframe and may not be seen until Q3.
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