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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team -
  • 01/09/2015 (15:01)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, the price of all grades of prime polyethylene decreased $0.05/lb in August. Some off grade pricing decreased as much as $0.08/lb to $0.10/lb since the May peak.

North American prices will continue to be pressured by global drivers. Oil will be the main driver. Naphtha prices continue to move with oil near a six year low. Prices in SEA and China are in the low $0.50’s with a cost to produce a pellet in the mid-$0.40’s/lb. The price in this region will continue decrease due to soft demand.

The devaluation of the yuan will also contribute to downward global pressure. China is a net importer of resin and other countries rely on China for PE exports. Those producers will be seeking new countries to export the resin surplus.

The devaluation of the yuan will limit imported pellets and accelerate finished plastic products such as plastic bags. Global competition will increase price pressure in North America.

Inventories should grow in August. Buyers purchased resin to meet demand, and the exports market remained cautious as oil prices fell below $40/bbl.

Production levels continued strong throughout the month. Production issues ate Formosa and Exxon during the month have been resolved. There are no known production issues as the month ends.

Spot Ethylene supplies are exceeding demand. After seven flat months of prices in the mid-$0.30’s, spot ethylene price fell 35% to $0.23/lb in August. There are no scheduled maintenance for any ethylene units until 1Q 2016.

Ethane prices remained unchained in August around $0.19/gal. The cash cost to produce ethylene from ethane is below $0.10/lb.

Ethane: Although recent spot prices are below last month’s average, the August average is about 5% higher than July. This is despite downward trending oil prices, including recent estimates putting oil at less than $40 per barrel. However, ethane is still cheap, and the minor fluctuations in the market have little impact when compared to more historic pricing.

Ethylene: After only seeing minimal price variations since late Q4 2014, spot prices took a dramatic turn and have declined $0.10/lb in August. Spot is currently ~$0.23/lb. Contract prices for August have not firmed, but based on the current spot prices, we could see a significantly lower settlement. All crackers are running putting the supply in a long position.

In the PP market, August PGP contract prices settled down by $0.035/lb to $0.33/lb. September nominations have surfaced calling for a $0.02/lb decline. Spot PGP has traded as low as $0.2625/lb with few bids or offers seen in the latter part of the week. Spot RGP was traded at $0.16/lb. Considering current spot PGP valuations, the September contract price could decline as much as $0.04/lb to $0.045/lb.

The September PGP contract price in Europe recently settled down €110/mt to €820/mt. This is a USD equivalent of $0.418/lb, still a hefty but shrinking premium to US PGP prices. PGP prices in Asia also continue to tumble with FOB Korea prices valued at $695/mt or $0.315/lb. Although this is still a small premium to US spot prices, it has finally caught and surpassed the US contract price for August of $0.33/lb.

Propylene supply out of the US remains strong with propane and butane still favored over ethane at the cracker. Refinery rates were down to 94.5% (US) and 95.6% (PADD3). Rates remain strong but are heading into TAR season. Crackers continue to run hard with FHR down for planned maintenance. EIA propylene inventories were steady at 4.524 million barrels.

In polypropylene, market conditions remain tightly balanced. There have been a few grades that have been seen offered to the secondary markets at slightly more competitive numbers, but most offerings still carry a significant premium to contract prices. Converters continue to buy at maximum allowed levels according to their contracts.

We have seen varying degrees of implementation with the July-August $0.05/lb margin expansion attempt. From our view, it was not fully implemented across the market. At least four producers have announced a September $0.06/lb increase. With a balance left from the August increase and not all producers supporting the September $0.06/lb increase, we think it will have difficulty being fully implemented.

PP prices around the globe continue to fall. Although US PGP prices are amongst the lowest in the world, China PP prices do not carry the margins we are currently seeing in the US. The discount that China PP prices carry to the US has grown from $0.065/lb to $0.10/lb. The premium that Europe PP prices have carried to US prices has shrunk over the past month from roughly $0.115/lb to $0.08/lb. If US producers continue to push through additional margin, the US could find itself with an uncompetitive PP price.

In the PVC market, PVC prices are responding to downward pressure in August to the tune of down $0.01/lb to $0.02/lb with more to come in September as ethylene spot pricing is averaging nearly $0.08/lb lower in August on ample supplies.

Ethylene contract is expected to see a reduction of $0.03+/lb for August.

The scheduled outage season is approaching in Q4 for both crackers and PVC producers, although the potential schedule looks heavier for PVC than crackers.

The impact of outages will be defined by export demand/pricing. Low oil pricing and economic concerns in China are yielding lower priced ethylene/PVC competition for US exports. In addition Q4 represents the slowdown in the construction season in the more populous northern hemisphere.

YTD through July, domestic demand is even with last year, a disappointing result so far in a year expecting growth from the construction market. A substantial improvement in housing starts led by single family homes in July will help, but is late in coming and tempered by a fall-off in permits.

Exporters found more interest through discounting last month, breaking the 500 million pound mark, pulling YTD to 2% above last year.

PVC production moved up by 10% in July, nearly matching demand improvement.

PVC raw material costs will move down by at least $0.015 from ethylene expected in August. September will see another reduction of $0.005/lb to $0.01/lb.

Chlorine: Prices have remained at about $225/st since the end of May. Seasonably higher demand for summer months is starting to diminish, although prices are still very stable.

Ethylene: After only seeing minimal price variations since late Q4 2014, spot prices took a dramatic turn and have declined $0.10/lb in August. Spot is currently ~$0.23/lb. Contract prices for August have not firmed, but based on the current spot prices, we could see a significantly lower settlement. All crackers are running putting the supply in a long position.

In the PET market, the lack of a paraxylene settlement for the past three months now has been remarkable. This of course has a trickle-down effect that has prevented downstream PTA, and further downstream PET contracts to remain unsettled. Firming of these contracts could occur at any point.

PET raw material costs fell $0.04/lb to $0.05/lb this month on the back of lower cost feeds.

The driving factor behind most feedstock price drops is the crude oil price moves. Current oil WTI is about $10 per barrel cheaper than the end of July, which is about a 20% decline.

Spot PET prices took a fairly large dip from last month (down ~10%). Asian prices mirrored this change almost perfectly, indicating a close relationship.

During this month, a preliminary ruling on the countervailing duty (CVD) investigation was called in favor of US producers. The investigation determined that China and India provided 4.27% to 18.88% in subsidies, and upwards of 115.04% in India (as a result of JBF Industries Limited’s non-cooperation and based on the facts available at that time). Oman’s subsidiary rate was about 0.28%, a rate too small to qualify for action.

Collectively, the US imported nearly $200 million worth of PET resin in 2014 from China, India, and Oman.

The CVD has created shifts in demand, with heavier emphasis on domestic sources as well as a more focus on imports from South Korea, Thailand, Taiwan, and Brazil. Brazil’s economic crisis has brought down prices following their devaluation of their currency, at the delight of US importers.

Domestic demand is slowing steadily, as the bottling season is coming to an end.

Asian demand was brought down by the crashing stock markets, creating a great deal of uncertainty.

Traders were hesitant, especially with the rate of price drops for various feedstocks.


PTA: The US and Asia spot prices fell in response to lower cost PX. Asian prices were effected by bearish demand as a result of the faded Chinese economy, and the weakened demand for PET. Recent PTA spot prices have reacted to the PTA facility going offline, however supplies remain strong with respect to demand.

PX: The June, July, and August contracts have still yet to firm. Spot prices on the month have been tumbling for both US and Asia. Asian spot prices are currently trying to tick back up after a downstream PTA facility (2.2 million tons per year) went offline, to return in about two weeks. Domestic production is considered unfavorable in terms of the upstream MX-PX spread.

EG: Spot prices have plummeted this month, falling on average about 15% from July. The Chinese economy along with negative sentiment, and falling crude oil and ethylene, has forecasted further declines in the near future. China experienced an extraordinary inventory build for EG this month, and has climbed to over 750,000 tons as of this week, which also contributed to downward price moves.
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