Weekly Market Drivers for the USA
Secondary and off grade markets firmed in the second half of May, near prime market prices. Polyethylene market drivers do not support the announced July price increase of $0.05/lb. The PE market should expect the price increase to be delayed in late July or until an unforeseen event supports the position; weather, unplanned outages, or oil price increases.
Suppliers are expected to take a firm position in early July regarding the pending increase.
During the Lyondell Basell June 4th webcast the VP of Investor Relations was asked about Exxon leading the $0.05/lb July PE increase, he replied, “it’s a positive omen that they’re (Exxon) stepping forward”.
Exports have tapered following strong March, April and May activity. Without the additional surge to Europe and SEA, lower export should increase NA inventories.
North American PE plants are producing at record rates which have been supported by the present average 18- 20 percent of production that is exported to all regions.
Ethylene prices continue to remain firm near $0.36/lb supported by good PE production. All units are reported running, with no unplanned outages. The Evangeline pipeline is reported to be in operation, supplying Louisiana with additional ethylene.
Southeast Asia and China prices fell this week after a short period of steadiness. The current market expects continued July decreases due to soft demand. The selling price is about $0.07 above the cost to produce a PE pellet from Naphtha at $575/mt, which creates a resin price floor.
Latin America continues to source from NA. SEA is not offering resin to LA. If PE is offered to LA from SEA, this will impact the exports from NA. SEA is supporting Europe’s higher priced market now.
Ethane: The weekly average for ethane is currently at about $0.189/lb, which is a negligible difference from May’s price at $0.188/lb. Prices for June have been trending upward, but only by the slightest amounts, and have been mostly flat.
Ethylene: Prices have been uneventful throughout the month. Average prices barely changed from the $0.36/lb level. Good supply and no major outages are contributors. The Williams Geismer is nearly 100% operational, and the Evangeline pipeline is flowing again. This is creating a bearish price market as more ethylene flows into the supply stream. May contract prices firmed up $0.0025/lb, but June prices have not yet firmed.
RTi Polyethylene Outlook and Suggested Action Strategies
30/60 Days: Without the market drivers in place for an increase and a history of strong suppliers’ determination led by Exxon, the decision to buy ahead of the July increase is challenging. Any unknown event could impact and implement the increase. PE prices are not going down in July and extra inventory has little risk. 90 Days: Oil and Naphtha prices have created a global floor and should keep resin prices firm, without erosion. The July price increase will remain in the discussions into the fall months.
In the PP market, June PGP contract prices were settled down by $0.02/lb to $0.40/lb. Spot propylene was fairly quiet in the first half of the week, but it came alive yesterday and this morning with spot PGP trading at $0.3625/lb yesterday and $0.36/lb this morning. This is down nearly $0.02/lb from last week. Spot RGP also retreated with $0.27/lb trading in recent activity. US propylene prices remain the lowest in the world, but Europe and Asia are putting their production issues behind them. Propylene prices in those regions are expected to move lower as supply returns.
Propylene supplies in the US continue to be very healthy. Propane and butane remain favored over ethane as steam cracker feeds which has leads to higher propylene yields. Refineries are in max production mode with rates back up to 94.0% (US) and 95.6% (PADD3). PDH is running with healthy margins and metathesis continues to run. Inventories of propylene reported by the EIA were this past week from 5.37 to 5.27 million barrels. This draw is likely the result of two export cargoes of propylene leaving US shores. The level of propylene exports is expected to decline in coming weeks as supply improves in Europe.
Based on current spot PGP prices, the July PGP contract price would be expected to settle lower by $0.015/lb. Of course, if spot prices were to decline further between now and the next few weeks, the decrease could be larger. There is not any evidence or market drivers that currently suggest higher prices are a threat at this time.
In polypropylene, much of the industry will be taking a small increase in their PP price for June. Producers were attempting to increase margins by three to four cents, and there has been a good measure of success in their effort. At least one of the major industry indexes has already reported that three cents of margin expansion has been implemented. With PGP contract prices settling down $0.02/lb in June, a $0.01/lb increase in PP was a common result.
Heading into July, new increase letters have surfaced from several PP producers calling for another $0.05/lb margin increase, basically, $0.05/lb over and above the movement in monomer. Producers are clearly leveraging their pricing power resulting from strong PP demand and increasing industry operating rates. With recent adjustments to the May ACC data, polypropylene is growing at a pace of 4.8% relative to 2014 averages and operating rates are averaging 91.4% in 2015.
LBI has issued a Supply Allocation letter that stated PP sales will be limited to average historical purchases. We have heard that LBI will be taking a shutdown in late July.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: Prices are expected to be close to flat in July. PGP prices are likely to move lower, but price increase attempts by PP producers could lead to slight PP increases. 60/90 Days: We think current conditions will continue into the next few months with a well-supplied monomer market that has potential for further decreases and a tight PP market that could see further margin expansion.
In the PVC market, June ended up flat with May as increase nominations were not supported by feedstock, supply/demand balance or even all producers.
July has seen fresh nominations that are unlikely to see success unless we see a significant change in some of the above factors which appears unlikely at this point.
Ethylene supplies continue to improve and chlorine is at seasonal levels.
Export pricing continues to fall on weak interest as growth is slower in Asia and European production outages are returning.
Production impact of domestic VCM production issues has not been significant for the domestic market. Demand from construction in coming months is expected to improve, but lost demand to the cold and then wet months has prevented downstream market from getting increases to support PVC price growth. Some producers are seeking $0.03/lb in July, and others for $0.02/lb.
Export pricing continues lower, falling $0.01/lb over the past week.
Housing permits last month surged along with new housing sales reaching an eight year high as builder optimism also improved.
Supplies are considered good, with reports of VCM disruptions cutting into June operating rates.
The Williams cracker and the Evangeline pipeline are now operating, along with most crackers in general, leading to flat to lower ethylene pricing moving in Q3.
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. Current nominations are defensive against downward market pressure and offensive should we have an event that impacts the market.
Exports increased 9% in May supported by some movement in Europe due to outages, but 16% below May a year ago. Overall, exports are up 5% for the first five months of the year, but are lagging volume increases as they did last year at this time. This is a result of weaker demand and improving supplies of more competitive ethylene from lower priced naphtha and increasing use of imported LPG overseas.
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 5 months.
Export prices have declined (fractionally) for the 11th week, continuing a downward pull on domestic pricing.
Domestic demand has suffered from a lack of GDP growth in Q1 although improved with the latest adjustment (adjusted up to -0.2% from -0.7%).
PVC output increased 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: Prices for June firmed as a rollover, prompting PE buyers to seek either flat to slightly down (€10/mt) PE prices. The ethylene drop was supported by better supply availability from renewed imports from the UAE. PE material availability remains very tight with many allocations still in play. There are also still three PE producers who are on FM (HDPE/LDPE): Total; Ineos and Sabic.
Chlorine: Prices haven’t moved this week, staying at about $225/st spot pricing for the 5th week in a row. Seasonal demand is said to be to blame for the continued high prices for chlorine.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Turn away increase attempts as export demand improvement is slow to appear and raw material costs are 15% to 20% lower than last year. 60/90 Days: VCM supply issues and a stronger domestic market may offset decrease efforts in Q3, but will see a counterweight in slower exports. Keep an eye out for changes in the key indicators above.
In the PET market, after several consecutive months of increases, June is still projected even higher, on average. If June does not materialize, the July increase announcements will likely gain strength. As of now, there are increases on the table for up to $0.04/lb for July.
Raw material costs for June are not official, but may be up as much as $0.02/lb. Demand is healthy, but not strong enough to justify a big margin gain.
PET production costs are likely to peak between now and July. 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.
The PET market in Asia is starting to weaken, and could take some pressure off of the US market and weaken the increase attempts for July by US producers.
European PET prices have seen some stabilization after several rounds of increases. Converter inventories are well stocked and buying is starting to relax.
The USITC unanimously agreed to move forward with the anti-dumping case against Canada, China, India, and Oman. 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%.
Indorama is also adding an additional 500,000 metric tons of PET capacity in Decatur, Alabama due to start in 2016 as well. This will bring the total capacity at the site close to a million metric tons. BP’s PTA plant in Decatur currently has a capacity of 1.15 million tons per year.
PX: Contract prices for PX settled for May at approximately $0.49/lb in the US, an increase of $0.035/lb since last month. June contracts remain unsettled, but spot prices have gone up roughly $0.05/lb since the start of the month.
PTA: Contracts have not settled, but an increase of roughly a penny is projected. This is based on the higher spot PX pricing. The overall PET market in Asia is starting to weaken, and that includes stabilization of PTA prices.
EG: MEG contracts for June are currently at $0.46/lb, which is almost 10% higher than May’s contract at about $0.42/lb. Ethylene pricing in Asia has softened a bit since the mid-June peak by close to $0.02/lb. If this sustains, it will impact the US market lower in July.
RTi PET Outlook and Suggested Action Strategies
30 Days: Feedstock pricing is expected to show a small increase this month. There are no increase nominations for June at this time. Summer demand is healthy, but contract feedstock settlements will dictate market direction. An increase of up to $0.02/lb is expected. 60/90 Days: The market is likely to peak in this timeframe. Costs are expected to move down, and seasonal demand is going to ease. At this time reductions are possible starting in August.
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