Weekly Market Drivers for the USA
Secondary market and off grade resins may have found the bottom. Activity has slowed as prime and off grade prices settle. Prices may see a slight rebound from this week’s low benchmark near $0.51/lb to $0.53/lb.
Export activity continues to balance inventories. August exports were just above the three year average of 20%. Export pricing is lower this week with traders buying in the mid-$0.40/lb.
SEA and China prices have firmed this week with the price of oil slightly rebounding. Buyers’ confidence improved as a bottom may have been reached in this region. Current cost to make a PE pellet in this region is near $0.47. The selling price for most commodity PE resins is $0.50/lb to $0.52/lb.
Houston packaging facilities are backed up again due to high export levels. Lead times are exceeding three weeks, usually ten days lead time.
Ethylene and Ethane prices remain stable. Both ethane and ethylene production are near all-time highs.
August only experienced a minor gain of 55 million pounds, as shown by preliminary August data from the ACC (HDPE +74; LDPE +8; LLDPE -27).
Production and sales moved closer towards balance, with the tightest spread in six months.
RTi Polyethylene Outlook and Suggested Action Strategies
30 Days: September prices will settle down $0.04. This price may be the new benchmark as prices globally have steadied. Prime buyers should buy to meet demand. Off grade buyers should consider earlier buys as market buying activity could improve. 60/90 Days: As global prices and North American prices firm, oil will be the driver for price movement. Expect prices to remain at the September levels and changes will be led by the movement of the oil prices. Increases will be difficult to achieve until oil exceeds $60 per barrel. Export activity and the close gap between North American and global pricing should keep prices firm in Q4.
In the PP market, the September PGP contract price settled down by $0.03/lb, putting the September contract at $0.30/lb. Last week it looked like we should have seen a $0.04/lb drop in price, but this week saw spot PGP trade up to $0.2775/lb which looks to have had some influence. Subsequently, we have seen spot PGP has been offered down to $0.2675/lb with no transactions heard. Spot RGP is being valued at $0.1725/lb with bids seen at $0.16/lb.
PGP in Asia (FOB Korea) is valued at $595/mt ($0.269/lb).
PGP in Europe saw steep declines last week with values on a FD NWE basis at €508/mt ($0.258/lb). This week there was a slight bounce to €530/mt ($0.269/lb). The bottom line here is that the rest of the world has caught up to the US propylene price.
Some minor production issues have surfaced over the past week for US propylene. Enterprise is taking one of their propylene splitters down for a week of maintenance. FHR also had their PDH unit down due to production issues. We have heard it has been restarted.
Refinery rates bounced back this week to 93.1% (US) and 92.3% (PADD3), however, rates are clearly down from summer highs and are expected to pull back further during the next couple months. EIA propylene inventories also moved up from 4.353 million barrels to 4.429 million barrels.
With the decrease in US propylene prices in 2015, PDH margins have taken a hard hit. We show that PDH cash margins are down to roughly $0.09/lb. Consider that during the 2013-2014 timeframe, PDH cash margins averaged $0.337/lb. This will likely put investment dollars for additional PDH units on the sidelines. It will not affect the Dow and Enterprise units which have already been funded.
In polypropylene, Exxon issued another price increase letter stating they will increase prices by $0.06/lb separate from any price change in propylene monomer. This increase goes into effect on October 19th. Pinnacle issued a price increase letter for October 1st calling for $0.06/lb. Ineos, Braskem, and P66 all have $0.06/lb increase letters for September implementation.
US polypropylene prices are gradually losing their competitiveness relative to the globe. European and Asian PP prices are following their monomer prices lower for the most part, whereas, US PP prices continue to see additional margin implemented into the price. In a fluid market, imports of pellets or finished goods will begin enter US markets. This creates demand destruction which leads to less pricing power on the part of domestic PP producers.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: We expect PP prices to be generally flat for September. The outcome will vary for buyers depending on their supply situation and price structure. 60/90 Days: We look for PGP to be flat to down in the coming months with a floor beginning to develop.
PVC prices responded to downward pressure in August to the tune of $0.01/lb to $0.02/lb with at least as much again in September based on lower cost feedstocks and slowed global demand/increasing supplies.
Offsetting downward price pressure is the domestic scheduled outage season in Q4 for both crackers and PVC producers. Some curtailment was seen this month from an unplanned VCM production issue.
The impact of US outages will be defined by export demand/pricing. Low oil pricing and demand concerns led by China are yielding low priced ethylene/PVC competition for US exports. However, increased demand is following the end of the monsoon season in some countries.
YTD through August, domestic PVC 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.
Producers continued to find export interest through discounting last month, but volume fell more than 10% from July. August was still 11% above the 18 month average.
PVC production fell by 5% in August as production issues surfaced focusing volume on domestic buyers.
PVC raw material costs moved down $0.016/lb from ethylene in August. September will see another reduction of $0.005/lb to $0.01/lb as raw material production is strong.
Ethylene: Production rates are near all-time highs, with mostly stable spot prices around $0.23/lb throughout September due to the increased supply.
Chlorine: Prices are sticking around the $215/st amount after the initial decreases last month, due to the easing of the summer seasonal demand.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Pricing discussions should focus on feedstock pricing falling further this month and low export pricing. Over-supplied ethylene and export pricing below $0.33/lb are indicators of a need to bring domestic PVC pricing down further, as cost to produce is 15% to 20% lower than last year. 60/90 Days: Scheduled maintenance will reduce supply as domestic demand will decline and export pricing will be held at lower levels from low oil pricing. Market direction will be defined by the degree of supply reduction balanced against the drop in demand and low cost global supply.
PET costs have remained mostly flat since mid-August, floating around half a dollar per pound. Both the US and Asia saw flat PET spot prices this week, with movements within 1% or less.
The contract settlement drought has finally coming to an end. June through August have been settled for PET and its’ feedstocks. August contracts sit at:
PX; $0.46/lb to $0.4675/lb (down $0.07/lb to $0.0625/lb)
PTA; $0.4585/lb (down $0.0444/lb)
PET; $0.7398/lb to $0.7498/lb (down $0.0354/lb)
As a result of the end of the summer bottling season, PET experienced low demand this week domestically, despite the countervailing duty (CVD) being under effect. But imports have shifted to countries like Oman, Taiwan, Thailand, and South Korea following the CVD.
Upstream MX prices have been falling, improving PX production margins and may encourage increased production. Prices have been ticking back up nearing the end of this week. BP’s PX plant in Texas (1.4 million pounds per year capacity) has been offline for over a year now, and they have cut 15% of the workforce there because of the poor production economics at this time.
Crude oil has maintained a $45 per barrel average for the last two weeks, with slight increases as this week closes.
Paraxylene demand in Asia is likely to falter in the near future, as turnaround season for many downstream PTA plants is quickly approaching. Several plants in Asia are scheduled for maintenance for upwards of 30 days or more. This should create a tight supply situation for PTA and perhaps PET as well. There are a few plants that are coming back online from maintenance, as well as one plant that is being built and scheduled for completion in 2017.
Asian MEG continued its rebound this week, responding to increased demand for Asian PET. China’s inventory overload from August has been declining, although still at enormously high levels at about 720,000 tons. Increased demand has forced a rise in run rates for polyester facilities to nearly 80%.
European contracts for PX in September settled at €720/mt, down €65/mt from the August contract price. September MEG settled at €851/mt, while PET contracts have been slipping since the start of July, currently sitting at about €910/mt.
RTi PET Outlook and Suggested Action Strategies
30 Days: Prices are approaching a trough, one that is lower than the minimum after the late 2014 price drops. The latter parts of this month and the early parts of October should have the lowest cost feedstocks and decent market forces that keep prices down. 60/90 Days: With oil inching upward, expect near proportionate increases in feedstock pricing as well. Prices should stay relatively low into Q4, although they may see an upward trend going into 2016.
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