Weekly Market Drivers for the USA
Formosa has lowered the PE price $0.05/lb while Nova initially is offering flat prices for August. The downward move by these major producers leads to an expectation that the other producers will follow this price direction.
Secondary market and off grade buyers are pushing for lower prices as resin availability remains ample.
Global price points continue to expect further reductions as feedstock prices move lower.
Spot ethylene prices have finally started to drop after going eight months of nearly flat pricing.
Current spot prices are down ~$0.04/lb to $0.305/lb, with July contract prices firming $0.01/lb lower to settle at $0.3275/lb.
Next week’s ACC inventory and export data will be available for review mid-week. Decreased exports from July and improved inventory is expected.
The weekly average for ethane is at about $0.194/lb (unchanged from last week’s average), which is still on par with the past few months. Prices have stayed constant for about seven months in a row.
RTi Polyethylene Outlook and Suggested Action Strategies
30 Days: August PE prices are firming lower; the final number may not be settled until later in the month. 60/90 Days: Current market trends driven primarily from oil will determine the direction of the PE price. It is critical to manage inventories with the expectations of potential price decrease(s).
In the PP market, August PGP contract pricing should start to settle over the next several days. Initial nominations for August were for flat, but we expect to see a downward move of $0.03/lb to $0.04/lb.
Spot PGP was recently traded at $0.3025/lb. Material continues to be offered with few bids in the market. Spot RGP was traded at less than $0.21/lb and was seen bid at $0.195/lb.
WTI oil prices continue to unwind with prices trading around $44.29 per barrel on Friday.
PGP prices FOB Korea are valued at USD equivalent of $0.38/lb. The NW Europe PGP contract for August recently settled at €930/mt ($0.464/lb), down €80/mt.
Refinery operating rates were 96.1% (US) and 96.1% (PADD3).
Steam crackers running at high rates. Propane and butane favored over ethane feeds. LBI will increase their ability to crack additional propane in 3Q with logistical fixes.
LBI confirms that metathesis unit is running at reduced rates.
EIA propylene inventories were down from 5.053 to 4.798 million barrels.
In polypropylene, Braskem issued a price increase calling an additional $0.06/lb of margin expansion on September 1st. P66 followed with a $0.06/lb increase, also for September 1st.
With the August $0.05/lb increase that is already in play from most of the domestic producers, we are seeing further evidence that the increase will be split or pushed out to some degree.
Pinnacle has stated they will have to take a roughly 30 day outage at their Garyville, LAPP plant due to an expected interruption to their monomer supply. This will take= place in the September to October timeframe.
The premiums in the spot PP market continue to erode. In general buyers appear to have their requirements covered and do not need to pay a premium for additional material. Preliminary ACC demand numbers for July should be released in the next couple days. There is speculation that PP demand is beginning to soften.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: Buy as needed. We can expect PP prices to continue to move sideways with some potential for lower prices depending on the monomer movements. 60/90 Days: Monomer supplies are expected to remain healthy. Domestic PP demand trends are possibly showing some weakness. This along with improving global supplies could offer some resistance to the margin expansion efforts here in the US.
July PVC prices are trending flat into August as ethylene contract pricing for July moved down a penny in a well-supplied market supported by added capacity and strong operating rates.
Producers will continue kicking increase nominations down the road, looking for an opportunity to implement if supply issues come up as outages are scheduled starting in September into Q4.
The impact of outages will be defined by export demand/pricing (low oil yields lower priced ethylene/PVC overseas) as Q4 represents the slowdown in the domestic construction season, which tended to disappoint expectations for stronger growth.
Lower oil prices are putting downward pressure on monomer and PVC pricing in other regions, putting export pricing near the $0.34/lb mark.
Offshore demand is a concern as global growth is expected to see more challenges most notably from debt problems in China, substantially lowering the Chinese stock market. PMI levels below 50 in Q2 and Q3 for China indicate slower growth than expected.
Exports improved to the highest of the year in June, but remain within 5% of the 2014 monthly average and 3% lower YOY in Q2.
PVC raw material costs will move down by $0.005/lb in July due to lower ethylene and flat chlorine with another fractional decline from ethylene expected in August.
There has not been any price movements in chlorine since the start of June. Spot is staying at $225/st, with contract at $250/st, and strong seasonal demand has kept prices high and steady.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Pricing discussions should turn toward lower cost ethylene and low export prices as indicators of a need to bring PVC pricing lower as cost to produce is 15% to 20% lower than last year. 60/90 Days: Scheduled maintenance will reduce supply at a time when domestic demand will be declining and export demand will be low priced, moving the market into a flat to down trajectory.
PET spot price has been slipping more than $20/mt per week for the past four weeks, dropping over $100/mt since the start of July.
The paraxylene contract price has frustratingly remained unsettled yet another week, continuing a state of uncertainty in the PET market. Expectations for a settlement are hovering around $0.52/lb and $0.53/lb for both June and July. PTA and PET contracts still on hold as a result.
Spot PX in Asia has been trending lower, falling about 10% since mid-May. These lower prices have caused some US buyers to import from Asia, as well as bringing down domestic spot prices slightly on the week. Increased Asian competition may try to pull domestic PX prices lower, however the MX-PX spread is currently leaning towards unfavorable for US producers, which is lowering margins and preventing price drops.
Based on the PX contract expectations, PTA is looking to be close to the $0.50/lb to $0.51/lb range, however it is definitely subject to change.
PX supply is said to be tight at the moment, but the PTA market is somewhat balanced. PET demand is holding, although it is expected to continue to weaken as the end of summer is approaching.
China experienced an enormous inventory build of ethylene glycol this week, from 93,000 tons to 607,900 tons. This build, coupled with declining oil prices, have caused spot prices for EG to drop about 4% since last week, a part of steep fall in price by nearly $160/mt since the end of June.
Reduced run rates for downstream PET in Asia is to blame for this increase in inventory.
US PET imports have shifted focus away from China and Oman and more onto other parts of Asia and Brazil. This is being blamed on the upcoming anti-dumping case decision, which should have a preliminary decision ruling by next week at the earliest, but could wait until October.
Asian supply is well over demand, attributing to price decreases of over 10% since the end of June (along with declining feedstock prices). Several producers are cutting run rates by another 5% in an attempt to hold on to margins.
RTi PET Outlook and Suggested Action Strategies
30/60/90 Days: Asian PET prices have fallen again this week, and opened up trade. US prices are falling at a seemingly greater rate, however. This has created an excellent opportunity for competitive forces driving down prices. The upcoming anti-dumping decision has already caused global markets to react, as shown by the shift in imports, but it will also play a major role in the current competitive environment in terms of a potential resolution.
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