Weekly Market Drivers for the USA
The draw in inventory was expected due to a pre-buy activity in April and strong exports. Pre buy demand will correct itself; export activity will keep or lower inventories in May and June.
Above average exports, and continued May and June exports, will be the key to the inventory balance. This sustained above average exports will reduce inventories for an extended period of time
HDPE inventory levels are the lowest in the last 10 years, lower than the Katrina/Rita hurricane period.
Even with healthy LDPE levels, resin buyers and traders are describing LDPE market availability as challenging.
LLDPE export demand globally is very strong. Latin American offers for export continue to increase.
Houston warehouses for export bagging have backlogs three times the normal amount. BRC’s for bagging usually turn in less than two weeks from arrival; today backlogs are extended six or more weeks. Shipping vessels are also becoming a challenge to locate.
The full May $0.05/lb increase is 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.
Total sales volumes in March were the highest on record, dating back more than five years. April still managed to top this, with demand outpacing maximum production capacity.
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 five months of the year in many years.
The secondary market was inactive again 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: 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 full $0.05/lb increase May 1st. Prices are not retreating in May. Without further price pressure, manage inventories and buy to meet demand. 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 contract prices for May have not fully settled for the month. Discussions of a down $0.01/lb settlement began last week and was supported by certain buyers and sellers. We are hearing other sellers are holding out for only a $0.005/lb drop for May. We hope to hear of a final settlement soon. Spot PGP is valued at $0.405/lb with the bid/offer at $0.40/lb x $0.41/lb. Spot RGP has traded in a range of $0.31/lb to $0.3225/lb.
Propane prices have been dropping since mid-April even as crude oil prices have increased. Propane is pricing itself to keep all available demand options open, including exports and steam cracker demand.
Propane stocks are well above 5-year highs and production continues to grow. The situation is similar for butane and is allowing both propane and butane to be favored over ethane as steam cracker feeds.
Propane and butane have significantly higher yields of propylene than ethane, boosting supply.
Refinery operating rates remain above the 90% level but dropped back from the previous week’s levels due to a couple unplanned operational issues. Marathon’s refinery in Garyville, LA had to take down their FCC unit for what is expected to be a 30 day outage. This refinery is the main source of propylene feed to Pinnacle Polymers PP plant in Garyville causing Pinnacle to announce Force Majeure on PP supplies.
Overall propylene monomer inventories remain healthy with another small build up to 4.975 million barrels. We expect refineries to run hard into the summer months once the immediate production issues get resolved. PDH supply is incentivized to run and with propane and butane favored over ethane, steam crackers will be producing a good amount of propylene as well. The one area of supply that is a concern is metathesis due to compressed propylene to ethylene spreads, but we are hearing that metathesis continues to run in C4 mode which keeps propylene output the same.
The market driver that is causing propylene prices to stabilize is demand. US propylene prices are the lowest around the globe. This is creating export demand in the form of propylene and propylene derivatives. In addition, domestic demand for polypropylene is strong creating a strong pull on monomer.
The tightness that propylene is experiencing overseas is expected to improve over the next 30-45 days as recent outages begin to restart. This could cause global propylene prices to drop and threaten some of the export demand the US currently enjoys.
On the polypropylene front, despite recent margin expansion, US prices are lower than most regions of the world. Through April of 2015 domestic PP demand is up by 4.8% compared to 2014 averages. Industry operating rates in the US are averaging 91.0%, and market conditions have been generally tight.
As noted above, Pinnacle Polymers issued a FM on PP supplies until their feedstock issues get resolved.
New price increase announcements for further margin expansion have recently surfaced by several of the major US producers. All increases are above the change in PGP.
LBI - $0.03/lb for June 1st.
Formosa - $0.03/lb for June 1st.
ExxonMobil - $0.04/lb for June 15th.
Total – Balance of previous $0.05/lb for June 1st.
Pinnacle - $0.03/lb for June 1st.
Ineos - $0.03/lb for June 1st.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: US PP prices are currently amongst the lowest in the world. There is a risk of slightly higher prices in June due to margin expansion and potential changes in the PGP price. 60/90 Days: Longer term, we do not see prices increasing by a large amount unless oil prices were to rally or a major supply even occurred. We also feel that there is still potential for further declines once global monomer supply issues get resolved. Domestic supply of propylene monomer is strong.
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 down as export pricing moves lower and domestic & exports sales fell in April.
PVC output was reduced by 8% to operating rates below 80% as producers attempted to offset perceived weakness in the demand side.
Domestic demand fell by 4% and exports by 3% in April.
Higher ethylene overseas due to Q2 outages did not help PVC exports as much as expected. Export prices are continuing to move lower, adding a downward pull on domestic pricing.
Domestic demand suffered from a lack of GDP growth in Q1 that appears to be hanging on. 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 fractionally week over week, now below the $0.37/lb level as US exporters are looking to replace Asian resin that had been competitive in L.A. prior to cracker outages in Asia and now Europe with a recent PVC outage in that region.
Operating rates fell to 77% in April falling below demand levels for an inventory draw.
PVC raw material costs are expected flat to down fractionally for the remainder of the quarter at levels 15-20% below Q4 2014.
April ethylene contracts remain unsettled. A two-month settlement with May is likely. Spot prices remained stable this week near $0.36/lb. Ethane costs remain very cheap.
Chlorine prices bumped up 15% this week on stronger downstream demand.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Leverage low average raw material cost vs last year for lower pricing this month and next, along with weakened demand both domestically and for export. 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. Primary risk factor is the degree to which producers discipline will kick in to limit production.
Producers are looking for an additional $0.04/lb for May PET contracts based on higher feedstock costs and seasonal demand.
April PET prices moved up as much as $0.04/lb, which covers the final cost increases for the month.
PTA contracts remain unsettled for May, but it does appear that further increases are likely. This is based on higher average feedstock costs throughout the month. April prices settled near $0.45/lb, which is the highest since November.
PX contracts for April settled up $0.015/lb at $0.455/lb. There has not been a settlement for May. Spot prices may have reached a peak last week, as they have begun to ease slightly. Prices in Asia are also down. May PX in Asia settled near $0.42/lb.
In addition ethylene prices are up significantly in Asia. Although starting to ease, this led to higher EG prices, which directly factors into US pricing.
While April costs moved up close to $0.04/lb for non-integrated producers, May is still likely to see further increases – potentially as much as $0.03/lb.
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.
Feedstocks in Asia are starting to drop, giving local producers a little extra PET margin for the time being. Demand in the region is healthy.
Europe is continuing to see 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. A win here would be avoiding the full $0.04/lb push by producers. This will depend on where your prices were in April and where PTA contracts ultimately settle. 60/90 Days: June is beginning to look like it could be a stable month. Demand will be strong, but there are signs of a softening upstream market that could balance out price. Decreases are not likely in this timeframe and may not be seen until Q3.
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