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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 16/06/2015 (15:23)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, after a combined draw of 420 million pounds in March/April, preliminary May data from the ACC shows an inventory gain of 207 million pounds; (HDPE +123; LDPE +14; LLDPE +70). Inventories are back up among the highest levels on record.

Major PE resin supplies have announced a $0.05/lb increase effective July 1st.

The very rapid inventory recovery is a significant first sign of the global resin recovery. This is a key driver that is needed to influence the July increase. The strength of the global market is not enough to increase prices.

Total sales volumes in May were down 7%, with declines in both domestic and export demand from April.

Overall production reached the highest level in years, with operating rates near 97% of capacity.

Exports declined in June from May. Exports are just below the three-year average of 20% of PE production.

Latin American markets continue to source from North America. Prices for June and July are expected to remain firm near $0.60/lb BRC FOB Houston for commodity grade resins.

Ethylene markets have remained a steady $0.36/lb. Williams and Dow returned to production this week. The Evangeline pipeline is expected to return by late June.

Ethane prices have been steady as well near $0.18/gal. Naphtha prices moved a few dollars up to $575/mt this week.

RTi Polyethylene Outlook and Suggested Action Strategies

30/60 Days: Manage inventories and buy to meet demand. With the exception of Europe, the global resin prices have peaked. The likely success of an additional price increase in NA, beyond the $0.05/lb in May, will be difficult to sustain. As global outages are reduced, oil and naphtha prices will be the leading indicator for resin prices. 90 Days: As of mid-June, and with current price increase drivers reversing, expect the price increase announcement for July to move into the following months and to be in position for three potential contributing factors: oil prices, good packaging demand in the fall, the hurricane season and any other potential disruption or event.

In the PP market, PGP contract prices for June have settled down $0.02/lb for a June PGP price of $0.40/lb. Relative to PGP prices in Europe and Asia, US prices are 4-5 cents lower than CFR China and 14-15 cents lower than Europe. Spot PGP traded down to $0.365/lb late this week and spot RGP traded a few times at $0.295/lb to $0.2975/lb. The $0.365/lb spot price is an early indication that we could be headed for another drop in contract prices next month. What is interesting is that the spread between RGP and PGP is compressing.

Typically, this would be a threat for higher PGP contract prices in the coming month, but we think the dynamic has shifted. Either PGP will push RGP lower or spreads will see a fundamental shift.

As the propylene lost billions of pounds of supply due to the ethane advantage over the past several years, refinery based supply (RGP) became the main source of propylene.

This allowed splitter operators to command higher spreads. Now that LPG (Propane & Butane) is advantaged over ethane, propylene supply from the cracker has improved and supplies are plentiful. This could be limiting the pricing power that splitters previously had. It will be interesting to watch what happens to the RG-PG spread through the balance of the year.

Propylene continues to be well supplied. EIA inventories were back up to 5.37 million barrels. This is equivalent to nearly a billion pounds of propylene. Inventories have been hovering around this level for several weeks now. Refineries are in full swing with rates at 94.6% (US) and 98.4% (PADD3). PDH production is running strong. Metathesis continues to run and with the Williams cracker in restart, nearly all crackers are in operation. As mentioned previously, propane and butane are the advantaged feeds, which is good for propylene supply.

Cumene is finding a home into gasoline as a blending component. This is creating some incremental demand for propylene. Exports to Europe have been pulling from supplies, but this appears to be shortlived as July bookings are zero at this point.

Polypropylene is doing its share consuming monomer as production is up 3.2% in 2015, and demand is up 4.5%. Alone, this is not enough to clear the propylene overhang. Either propylene needs to continue to find demand outlets or supply will have to be curtailed at some point.

Polypropylene inventories drew by 11 million pounds and days of supply fell to 32.2 days.

Overall supply/demand dynamics in polypropylene are quite the opposite from its feedstock propylene. The market remains tightly balanced. Producers continue to leverage pricing power with further margin expansion expected to take hold in June.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: Buy as needed. PP prices are expected to be close to flat with lower PGP prices and some margin expansion expected. 60/90 Days: Polypropylene prices are expected to stay relatively flat in the near term.

In the PVC market, May pricing ended flat with increase nominations yet to gain traction as suppliers continue to reintroduce prior nominations. Without export support or more significant gains in domestic demand, the expectation is for a flat market moving to a lower market in Q3 as exports lag and ethylene supplies continue to improve.

Increase rationale due to ethylene disruptions increasing spot pricing east of the Mississippi does not reflect that producers buy 80% or more of requirements on contract pricing. Outages are being rapidly resolved this week and next with cracker and pipeline restarts.

Exports increased 9% in May supported by some movement to Europe to outages, but 16% below May a year ago. Overall, exports are up 5% for the first five months of the year, but are slow to increase as they did last year at this time due to weaker demand and more competitive supplies from oil/naphtha based ethylene.

Now that ethylene has settled for April and May, feedstock cost for PVC is up $0.015/lb as of May driven primarily by higher chlorine pricing from strong seasonal demand for water treatment products.

Domestic PVC demand fell by 2% in May, leaving demand unimproved and even for the first five months.

Export prices have declined fractionally continuing the trend into its 9th week, continuing a downward pull on domestic pricing.

Domestic demand suffered from a lack of GDP growth in Q1 (now adjusted down from +0.2% to -0.7%) that frustrate demand growth in Q2.

Spot export trades continue to decrease fractionally week over week, below $0.36/lb as US exporters are competing with ample Asian resin in export regions.

PVC output increases 9% in May, back to the mid-80% level, with total output for the first five months matching that of 2014.

PVC raw material costs are expected flat to down for the next three months at levels 15 20% below Q4 2014.

Ethylene outages east of the Mississippi are moving to resolution this week and next, as there are reports of some VCM curtailment with little indication of impact on the PVC supplies.

Ethylene markets have remained a steady $0.36/lb. Williams and Dow returned to production this week. The Evangeline pipeline is expected to return by late June.

Chlorine prices stabilized after the seasonal jump in demand. Contract pricing remains at $250/st, while spot is around $225/st. These prices are currently ~$15/st higher than June of last year.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Turn increase attempts based on higher chlorine into decrease requests as demand improvement is slow to appear and raw material costs are 15-20% lower than last year. 60/90 Days: As ethylene and PVC supplies strengthen into Q3, pursue opportunities to roll back earlier increases as export markets will continue to seek lower level pricing as outages overseas are concluded and demand growth continues to disappoint.

After increasing the past few months, PET contracts in June are projected to settle anywhere from flat to up $0.02/lb.

Spot PET prices have been very stable over the past three weeks, staying around $0.60/lb. This is only about $0.01/lb more than last month’s average, indicating little movement on a month to month basis.

May contracts were up as much as $0.04/lb due to increased PTA and MEG. June contract prices have not yet settled, for they are waiting on updated feedstock prices.

PET production costs are likely to peak during the next 30-60 days. Seasonal demand will also be starting to fade, particularly in Asia. In addition, oil prices do not appear to be showing signs of sustainable strength.

PET operating rates are down roughly 10% in Asia to compensate for decreased demand.

Demand for PET in Asia is weak, and spot prices are continuing to ease.

PTA contract price sits at $0.4755/lb, awaiting changes later this month. Contract prices have been on the rise since the start of this year, but are likely to peak this month.
Paraxylene is expected to move higher again this month based on higher spot prices, which are up roughly $0.02/lb from the end of May.

Asian PX increased roughly a penny on the week after some increases in crude oil pricing.

Contract pricing for MEG in July has been nominated flat from June prices at $1,100/mt. Asian ethylene prices remained flat as trading has been scarce. Buyers are holding out for prices to drop while sellers are reluctant to take a hit to profits.

Spot PET prices are down slightly this week in Europe as converter supplies have been building. In feedstocks, PX for June looks like it will settle flat, or close to it.

RTi PET Outlook and Suggested Action Strategies

30 Days: Feedstock pricing is expected to stabilize this month. There are no increase nominations for June at this time. Summer demand is healthy, but contract feedstock settlements will dictate market direction. A mostly flat market is anticipated. 60/90 Days: Costs are expected to move down, and seasonal demand is going to ease. Price reductions could start in July. There are no indications of any major increases in this timeframe.

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