Weekly Market Drivers for the USA
Dow revised their October $0.07/lb increase to $0.05/lb to meet the Westlake increase. Both of these increases have received no attention and have no chance of implementation in October.
Steady oil prices continue to firmed global PE prices. European prices are still declining following the steep increase earlier this year due to multiple supply disruptions. European ethylene prices are down $160/mt from the $1,105/mt peak in May.
The global price set by the oil/naphtha pellet has set a floor that protects imported finished goods from entering the North American market, and allows North America to export as needed due to the natural gas/ethane advantage. This situation helps balance inventories and firm resin prices.
The cost to make the oil/naphtha pellet is $0.47/lb today. PE is selling in SEA China in the low $0.50’s, and can’t go down much more. NA is selling commodity grades in the high $0.50’s to low $0.60’s, while Latin America is getting pellets delivered in the mid $0.50’s, which is very close global prices.
North American export prices are trading in the $0.45/lb to $0.48/lb range for most LLDPE and HDPE resins.
NA Ethylene supplies continue to be healthy. Ethylene producers have begun to pay for storage of surplus ethylene in hopes of a recovery. Spot ethylene traded below $0.20/lb this week for the first time since late 2008.
Secondary market activity has slowed late in the month. Buyers who participate have restocked and are buying to meet demand. Prices for most off grade resins are selling for $0.51/lb to $0.55/lb.
RTi Polyethylene Outlook and Suggested Action Strategies
30 Days: October prices should firm without any expectations of upward or downward pressure. 60/90 Days: Manage inventories to meet demand. Watch for upward changes in oil prices. This action will be the leading driver for any chance of price increase. Q4 should remain at September prices. It is reasonable to expect suppliers to announce new increases, if the opportunity presents itself, in Q1 or Q2 2016. Prices should remain flat until a time when oil approaches $60 per barrel. Current 2016 oil published forecasts range from the low to high $50 per barrel in 2016.
In the PP market, contract PGP was settled down $0.03/lb for September putting the contract price at $0.30/lb.
Spot PGP is stable with values in the $0.265/lb to $0.27/lb range. Spot RGP was traded this week at $0.165/lb.
US propylene prices are no longer the lowest around the world. Propylene in Asia came crashing down this week with FOB Korea prices pegged at $510/mt ($0.231/lb). Prices on a CFR China basis were pegged at $560/mt ($0.254/lb). In Europe, prices were stable at USD $0.27/lb.
Refinery operating rates were reported at 90.0% (US) and 91.8% (PADD3)
Propylene inventories reported by the EIA were up from 4.43 million to 4.52 million barrels.
Propane is disadvantaged to ethane as a cracker feed by about $0.01/lb. Butane is at parity with ethane. We are likely to see slightly reduced propylene supply from the steam cracker due to feed switching.
The export arbitrages for propylene are closed which limits the propylene producer’s ability to move excess pounds. On the other hand, propylene prices are closing in on other support points which could limit supplies. The point being, propylene has limited downside potential. There is some potential for further price reductions due to an overall healthy global supply picture and the DOW PDH unit soon to arrive, but the bottom appears to be close.
In polypropylene, late last week Ineos issued a Force Majeure due to a power outage at its Chocolate Bayou site which affected their PP plant and steam crackers. We have since heard that power has been restored. The crackers could remain down for another few weeks, but the PP plant is expected to resume operations within the week.
In secondary markets, there does appear to be a few more offers entering the market place, but overall supply/demand balances remain tight.
PP prices in Asia are carrying a heavy discount to US prices. PP prices in Europe have come into parity with US prices.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: PP prices will remain flat in September give or take a penny. The major indexes have reported different levels of margin expansion this month. 60/90 Days: While there is some potential for lower monomer prices, the market appears close to a bottom. With polypropylene price increases in the market for October, we would not expect much more relief, or any, for polypropylene in the next several months.
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.
Downward price pressure will see a floor from the domestic scheduled outage season in October/November for PVC producers. One producer went into turnaround early due to some unplanned production issues.
The impact of US outages will be defined by export demand/pricing. Low oil pricing and demand concerns led by China are yielding ample low priced ethylene/PVC competition for US exports. A couple of holiday periods in Asia and the Middle East have reduced market interest in the short term as well.
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.
Housing starts fell in August month over month but continued above the one million unit annual pace. Permits increased, helping bolster expectations for fall construction demand.
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. October is likely to see a similar decline.
Ethylene: NA Ethylene supplies continue to be healthy. Ethylene producers have begun to pay for storage of surplus ethylene in hopes of a recovery. Spot ethylene traded below $0.20/lb this week for the first time since late 2008.
Chlorine: Spot prices were flat on the week at about $215/st, which is at the same level from a year ago.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Pricing discussions should focus on feedstock pricing falling further this month and low export pricing from well supplied overseas markets. Over-supplied ethylene and export pricing below $0.32/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.
Spot PET was mostly flat on the week, still hovering above half a dollar per pound. Asian spot prices saw a minor increase of about 1%. Formula based cost forecasts show that prices will be flat to up slightly into October, still maintaining a low level when compared to yearly averages and historical prices.
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. The anti-dumping preliminary decision is expected to arrive sometime next month.
There are speculations of lower September contract settlements for paraxylene, PTA, and PET, following decreases in the feedstock prices.
Production economics for paraxylene has been improving for both mixed xylenes and even toluene based routes. This could easily encourage production more so than the previous months, and add supply into the market. However, with the turnaround season rapidly approaching for many plants, paraxylene production may hold out to avoid seeing prices drop and their margin disappear.
An explosion in Taiwan this week has caused a halt in the production of paraxylene at Formosa/Fibre Corporation’s aromatics plant, which has PX capacity of 900,000 tons per year.
MEG supply in the US has been tightening, already affected by seasonal turnarounds. Demand has been waning with the end of the bottling season, creating a somewhat balanced market situation. Prices have still declined, tracking Asian prices. September MEG contracts settled at $0.3945/lb.
Asian ethylene prices have been on the rise since the start of September. Imports into China have been high relative to previous years. Meanwhile in the US, ethylene has reached a nearly six year low, down below $0.20/lb.
European contracts for paraxylene 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 end of this month and the start of October should have the lowest cost feedstocks and decent market forces that keep prices down. 60/90 Days: Turnaround season will create a weakly supplied market. Prices will likely respond with increases into November, but should stay well below the yearly average.
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