Weekly Market Drivers for the USA
The global PE market is positioned to go long, with more resin than demand. All the key drivers that supported the May increase have reversed direction or will soon be changing direction; improved inventories, decreased global exports, flat feedstocks, and lower oil prices are some of the reversed drivers.
Off grade prices have softened since late June. Brokers are moving any excess material to prepare for potential PE price decreases.
As inventories improve to above the three year average, suppliers have begun to aggressively move PE out of the North American market. Export prices have decreased $0.02/lb to $0.03/lb. At least three significant exports deals of 50 to 100 railcars in July have been discovered at prices near $0.50/lb.
Exports to Asia and Europe have discontinued. Latin American continues to source for North America, and other regions have not offered PE into the LA market. Softer oil prices may allow the SEA supplier into LA.
SEA prices are steady, however lower offers have surfaced as oil prices fell.
Europe prices have retracted as inventories improved from the first quarter.
Ethylene and ethane prices have remained constant for a historic six months in a row; ethylene at $0.36/lb and ethane at $0.18/gal.
RTi Polyethylene Outlook and Suggested Action Strategies
30 Days: Expect the suppliers to hold on to the May increase through July. 60/90 Days: Current market trends, driven primary from oil, will determine the direction of the PE price. Oil prices in the low $50’s per barrel should provide for price reductions in August and/or September. It is critical to manage inventories with the expectations of potential price decrease(s). The $0.05/lb increase announcement will remain in discussion awaiting an event to support it.
In the PP market, the July PGP price has not been settled, but discussions are taking place at down $0.03/lb. to $0.035/lb. Spot propylene has been falling with spot PGP trading as low as $0.3375/lb. This is down about $0.0325/lb since the beginning of June. Spot RGP has also lost some ground with a recent trade at $0.235/lb. The RG-PG spread using the June contract price of $0.40/lb is $0.165/lb, so there is plenty of room for the July contract to make a decent move lower. Based on the spot PGP price, the implied July contract price would be roughly $0.36/lb to $0.365/lb, so we are expecting a decline of $0.035/lb.
The issues that have caused propylene prices in Asia and Europe to carry a premium to US prices are largely behind us. Prices in both regions are falling. The spot propylene price in Asia is quickly catching up to US prices with FOB Korea prices valued at $860/mt ($0.39/lb). This is a drop of $0.07/lb from its mid-April peak. It will be interesting to see where Asian PGP prices go with supplies improving and new capacity coming in 2H 2015. Combine that with sluggish demand in China and a new PDH unit due to start in the US, and we could see some competition for available demand.
US propylene supply continues to perform well. Refinery operating rates are strong with rates at 94.7% (US) and 96.3% (PADD3). EIA inventories of propylene are steady at 5.3 million barrels, well above five year maximums for this time of year. PDH is running and margins are good. Steam crackers are running at strong rates and propane and butane continue to be favored over ethane. Dow Freeport had a cracker upset but should be only limited downtime. Metathesis supply continues to run as well, although margins are very tight and we are at risk of rates cuts from this source.
On the polypropylene front, producers continue to push for margin expansion. Several producers have price increase (margin expansion) letters out for July calling for $0.05/lb. One producer is at a $0.04/lb increase. The other producers have letters out for August calling for $0.05/lb. Considering the strong demand trends and high utilization rates in the NA PP industry, there is a strong likelihood that producers will have at least some success with these increase attempts. With monomer expected to move lower, PP prices will end up close to flat when all is said and done for July.
Preliminary data from the ACC was posted for June. Polypropylene demand is screaming. June posted the strongest demand month of the year following the previous five months of above average demand. Through June, 2015 is on a demand growth pace of 6.0%.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: Buy as needed. PP prices will be steady with no immediate threat of significant increases in the near term. 60/90 Days: While we do see potential for monomer to see lower prices, polypropylene will most likely see flat prices.
June PVC prices were flat as further increase nominations will look to reduced operating rates from monomer outages (now resolved) for support. Global markets will play a role where prices were up fractionally.
On the side opposing an increase, we saw ethylene contract pricing move lower in June, down by $0.0075/lb, flat chlorine and substantially lower oil leading to expectations for lower global ethylene and PVC pricing.
Offshore demand is also a concern as global growth is expected to see more challenges most notably from debt problems in China substantially lowering the China stock market.
July increase nominations are unlikely to gain traction unless there is significant impact from monomer supply outages. Ethylene supplies continue to improve with lower prices and chlorine has stabilized at seasonal levels. Export pricing continues to be low, although fractionally higher this week. Production impact of domestic VCM production issues has curtailed some availability in the export markets. Demand from construction is improving, but lost demand to the cold and then wet months has prevented the downstream PVC markets from getting product increases to support resin increases. A divided market with some producers out for 3 others for 2.
Exports increased 9% in May supported by some movement to Europe due to outages, but 16% below May a year ago.
Feedstock cost for PVC is up $0.015/lb in May driven primarily by higher chlorine pricing from strong seasonal demand. June and July are expected to see costs fall $0.0025/lb each month from ethylene.
Domestic PVC demand fell by 2% in May, leaving demand unimproved and even for the first five months.
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.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Turn back increase attempts as export demand improvement is slow to appear and raw material costs are 15-20% lower than last year. 60/90 Days: VCM supply issues (now resolved) and a stronger domestic market may offset decrease efforts in Q3, but will see a counterweight in slow exports.
Spot PET has remained quite stable at around $0.60/lb, but contract prices are remaining unsettled due to unsettled feedstock contracts.
Producers have nominated increases up to $0.04/lb for July.
The market is experiencing a level of uncertainty at the moment. Expectations for increases are being doubted by the recent oil price moves.
PTA contract price is waiting on the PX settlement, and is stuck at the May $0.4755/lb price. Asian spot prices were down $60/mt as a result of the stock market issues. These issues have negatively affected PET demand in Asia as well.
PX June is still unsettled. Spot prices have been declining, and weaker oil prices may indicate a lower PX settlement.
Asian MEG spot has been on the decline, dropping about 8% from last week. This will likely bring down US prices. Spot ethylene in Asia has been experiencing a five week dip in prices, by almost $200/mt.
Raw material costs are likely to peak in June, with PET expected to follow suit in July. August is projected to see a flat to down market, partly based on weakening oil and Chinese markets.
There is a potential shift in imports that is dependent on the outcome of the anti-dumping litigation, and may encourage more domestic sales.
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.
RTi PET Outlook and Suggested Action Strategies
30 Days: July will likely see some sort of increase, but is expected to average less than producer targets based on the weakening spot markets. 60/90 Days: August could be the beginning of a weaker market. Oil prices are down, and summer production could start to slow. One factor that could prop up the domestic market will be the USITC decision on anti-dumping duties; a decision is expected in August.
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