Weekly Market Drivers for the USA
Exports to China and SEA are expected to return to normal levels as the SEA/China market prices have peaked and prices slowly begin to retreat as both cracker outages return to production with less than anticipated demand.
Exports to Latin America continue to be strong. Naphtha pricing has been steady near $580/mt. LA will continue to consume the incremental NA PE as long as naphtha remains near this level.
Despite the lowest HDPE inventories in over ten years, RTi’s client survey has not discovered any HDPE supply constraints. It is import to manage and closely watch HDPE orders in the event this low level begins to impact NA processors.
Ethylene production rates are at a three year high. Almost every ethylene unit is healthy and supply is very good. The ethylene prices are maintaining a steady $0.36/lb due to strong PE production. Ethylene is becoming less of a PE driver than ever before, having very little or no impact on PE prices. The Williams plant experienced a shut down Thursday that did not impact the spot ethylene markets; there is no restart date available.
Secondary market buyers have returned to the buy as needed mode. Most participants purchased above normal levels in March through early May to take advantage of lower prices.
RTi Polyethylene Outlook and Suggested Action Strategies
30/60 Days: Manage inventories and buy to meet demand. As SEA and China prices begin soften, the likely success of an additional, beyond the May $0.05/lb, price increase in NA will be difficult to sustain. As global outages are reduced, oil and naphtha prices will be the leading indicator for resin prices. 90 Days: Expect price increase announcements for August or September due to three contributing factors: good packaging demand in the fall, the hurricane season and the suppliers will have not announced an increase for several months by this time.
In the PP market, another long awaited PGP settlement, but they finally got it done at down $0.01/lb for May. This puts contract PGP at $0.42/lb. This the lowest PGP contract price since July of 2009 following the financial crisis. We are likely to go lower. It took less than 24 hours for spot PGP to show its true colors when it transacted down to $0.35875/lb. That would be an implied contract price of about $0.385/lb. With June just around the corner, we’ll have to see where things go from here. Spot RGP also lost ground this week, transacting at $0.285/lb.
The propylene industry is making a lot of propylene. Refineries are running at 92.4% (US) and 93.1% (PADD3) with room to grow. US steam crackers are running hard with most of the outages behind us.
Williams has had another setback and had to take their cracker down, but everything else runs. Propane and butane remain favored over ethane, increasing the yields of propylene. PDH is running strong with favorable economics. Metathesis economics are not good and rate cuts are a threat, but, at this point, we hear metathesis continues to run. As a result, propylene inventories are well above the 5-year max for this time of year and very near all-time highs. EIA inventories jumped from 4.975 million barrels to 5.37 million barrels.
Another interesting factor is that propylene in the Far East has peaked and prices have started to come off. There are also several new capacity start-ups soon to arrive. Where prices ultimately head and whether the US has to compete with that price is going to be an interesting dynamic to come into play. Let’s not forget, the US has a new PDH unit coming as well.
On the polypropylene front, Pinnacle announced a Force Majeure on May 11th due to feedstock concerns. This week, Pinnacle has told most of their customers that they will now be able to supply all their requirements. We believe this has to do with Marathon delaying their maintenance at their Garyville refinery.
Margin expansion continues to be a heavily discussed topic. Currently, most US PP producers have price increase announcements for June implementation. Most call for a three cent increase above and beyond the movement in monomer. One producer is calling for four cents. We think there is a good chance that some or all of this can be implemented. So far, US PP prices remain competitive with the globe. Until the margin expansion gets to a point where demand destruction occurs, producers will continue to leverage their pricing power.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: Buy as needed. Prices will stay flat or move lower depending on how much PGP drops in June and how much margin expansion gets implemented. 60/90 Days: We do not see any market drivers that indicate a threat for major price increases in the near term.
In the PVC market, nominated increases have lost traction as demand has disappointed on both the domestic and export front. 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 moving 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.
A strong year for construction is anticipated with April housing starts now reflecting that idea by increasing some 20% above March and a year ago April. Building permits are also up 10% over March and 6% over a year ago.
Shintech has announced the construction of 1 billion lb ethylene cracker in Louisiana to open in 2018. VCM and PVC expansions will open by early 2016.
Spot export trades continue to decrease fractionally week over week, now nearing the $0.36/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 PVC outages 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.
Ethylene production rates are at a three year high in the US. Almost every ethylene unit is healthy and supply is very good. The ethylene prices are maintaining a steady $0.36/lb due to strong PE production.
The Williams plant experienced a shut down Thursday that did not impact the spot ethylene markets; there is no restart date available.
Chlorine experienced a minor bump, with spot prices increasing 5% on improved downstream demand.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Leverage low average raw material cost vs last year and good product availability 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 earlier increases as export markets will demand lower pricing as outages overseas are concluded.
After moving up as much as $0.04/lb in April, PET contracts are expected to increase again based on higher costs and continued strong demand. Several producers have nominated an additional $0.04/lb for May.
At this time, raw material costs for May are projected up roughly $0.03/lb. Producers are likely to get at least $0.02/lb, depending on how much of the increase was taken in April. However, feedstock contracts remain unsettled.
PTA contracts in April settled near $0.45/lb, up about $0.03/lb from March. This is the highest level since November, and is the direct result of margin gain as opposed to higher PX costs.
Although May paraxylene is projected to settle higher, recent spot prices have come down $0.02/lb. This could help push the settlement lower.
Global ethylene glycol contracts are continuing their upward trend. Producers in Asia have announced an additional $0.04/lb to $0.05/lb for June contracts. However, ethylene prices in the region have started to move lower – down $0.03/lb from the end of April.
PET production costs are likely to peak during the next 30-60 days. Seasonal demand will also be starting to fade. In addition, oil prices do not appear to be showing signs of sustainable strength.
The PET market in Asia has seen higher prices and strong demand during the past couple of months.
This has led to higher import pricing into the US as well. However, this week, prices have started to ease as upstream costs moved lower.
European resin buyers also saw considerable increases in April. While feedstock costs have continued higher this month, with PX settling up €80/mt, buyers are beginning to lose interest as inventories have been replenished.
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.
M&G’s plant in Corpus Christi, TX is still on track to begin production in 2016. When it reaches full capacity, it will increase US PET capacity by 30% and PTA by 40%.
RTi PET Outlook and Suggested Action Strategies
30 Days: May prices are expected to move higher, but feedstock costs are beginning to ease. This could lead to lower contract settlements, taking support away from the $0.04/lb increase announcements. Negotiations should be delayed, with target pricing closer to $0.02/lb. 60/90 Days: The market is projected to peak in this timeframe. Costs are likely to move down, and demand is expected to ease. Price reductions could start as early as July.
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