Weekly Market Drivers for the USA
Dow is the only supplier with an October price increase announcement of a $0.05/lb increase.
Secondary market offers have rebounded from the early September sell off. Prices have increased $0.02/lb to $0.03/lb.
SEA and China PE Markets have firmed and new offers have increased slightly in October. Naphtha prices have been tracking 10:1 with oil in the mid $400/mt holding the cost to produce a PE pellet near $0.47/lb. Several planned maintenances in this region should tighten supplies and keep prices firm in the low $0.50’s.
Europe prices declined again due to falling ethylene prices. Resin prices are expected to firm shortly as they reach the global price bottom.
Sources continue to report packing delays in Houston due to excessive railcars.
Suppliers are actively seeking quick railcar returns and implementing demurrage charges. This is a signal of lack of storage due to improving inventories.
Spot ethylene inventories continue to be healthy. Ethylene producers are storing low cost ethylene in hopes of a Q1 draw during the maintenance season, or the infamous unknown disruption. Regardless, the spot ethylene market will not be a price driver for PE.
Ethane is trading at $0.19 per gallon, a feedstock from natural gas. Note: while it is near the same price as spot ethylene, it is priced by the gallon and ethylene is priced by the pound.
Inventory and export activity will be available next week, always a key PE driver.
RTi Polyethylene Outlook and Suggested Action Strategies
30 Days: As reported last week, October prices should firm without any expectations of upward or downward pressure. There are no drivers to support a November increase. 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 October prices. It is reasonable to expect suppliers to continue to pursue increases. Suppliers always need an increase in place if the opportunity presents it 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’s per barrel in 2016.
In the PP market, PGP contract prices for October have yet to settle by weeks end. September contract prices were settled at $0.30/lb, and the expectation is the market will see very little movement, if any, for October.
Spot PGP bottomed in early September around $0.26/lb and has since rebounded to about $0.285/lb. Spot PGP was seen bid at $0.285/lb, but there are not many willing sellers. Spot RGP is valued at $0.19/lb with little trading activity.
Refineries are getting into peak TAR season with rates falling to 87.5% (US) and 90.6% (PADD3). EIA propylene inventories were reported lower this week from 4.687 million to 4.457 million barrels. Overall inventory levels remain well supplied and above the 2014 peak.
Ethane has regained its position as the low-cost feed into steam crackers. As propane and butane get pushed out, propylene yields will fall. On the other hand, ethylene prices are down to roughly $0.19/lb making metathesis economics favorable. This provides a boost to propylene supply.
Dow expects its Freeport, TX PDH unit to achieve full rates by the 4th QTR 2015. Dow’s PDH unit has a capacity of 750,000mt/year, or 1.65 billion pounds per year.
LBI announced a Force Majeure event on October 7th at their Bayport, TX polypropylene plant. The site experienced a power outage. The extent of impact is yet to be fully defined, but sources are speculating that production will be down for 2-3 weeks.
It has been reported that Exxon is building inventory in anticipation of a TAR in early 2016.
Several PP producers have a price increase announced for October. Most are calling for a $0.06/lb increase above the movement in monomer prices. At least two suppliers have been willing to push the increase out one month with the potential to split the increase over two months. Negotiations are ongoing.
We continued to see spot material being made available into the secondary markets, but the pace has slowed from last week. We would still characterize the market as tightly balanced with any excess pounds being rather limited.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: PP prices in the US are most likely at a bottom and could move higher with margin expansion attempts in play. 60/90 Days: With the Dow PDH soon to be in production, there is potential for PGP to move lower, but the downside is limited. Again, we do not see the PP price able to move any lower in the near term.
PVC prices moved lower by a penny in September based on lower cost feedstocks and slowed global and domestic demand leading to increasing supplies and lower export prices.
October is under-pressure to give up another penny depending on the degree of supply constriction from maintenance outages underway this month.
Downward price pressure will see a floor from the domestic scheduled outage season in October/November for PVC producers.
At least one PVC producer has seen its’ stock downgraded due to expectations of reduced earnings in part from lower priced feedstock. Something to watch for is upward chlorine price pressure due to reduced caustic coproduction due to slowed global demand in aluminum production.
The impact of US outages will be defined by export demand/pricing. Low oil pricing and demand weakness led by China are yielding low priced ethylene/PVC competition for US exports. A couple of holiday periods in Asia and the ME reduced market interest early in the month as well. Global supply PVC supplies are strong.
Housing starts fell in August month over month but continued above the 1MM unit annual pace. Permits increased, helping bolster expectations for fall construction demand. Overall construction spending is up.
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 raw material costs in September fell $0.006/lb with another $0.004-$0.008/lb reduction expected in October as raw material production/availability is strong.
Ethylene: Spot prices this week are at about $0.19/lb, with inventories remaining healthy. Contract prices for September and October are still left unsettled.
Chlorine: Seasonal demand has faded, and spot prices have receded in response. By the end of September, spot prices fell almost 15% from the height of the summer demand price peak, and remained flat after that initial drop.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Pricing discussions should continue to focus on falling feedstock pricing and low export pricing due to 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 see seasonal declines and export pricing will be held at lower levels from low oil pricing. Market direction may be pushed to flat depending on the degree of supply reduction from maintenance outages balanced against the drop in demand and low cost global supply.
PET spot prices have been quite stable since mid-August. There is a slight downward trend, and current prices are still at lows that haven’t been seen in over five years. Market dynamics are balanced in terms of supply and demand, reinforcing the flat pricing.
US paraxylene contract price for October settled at $0.43/lb. Recent spot prices have picked up, tracking some price movements seen in Asia, and potentially responding to crude oil. Meanwhile production economics are still somewhat healthy in terms of MX-PX spreads.
Due to the uptick in PX spot prices, the October PTA contract settlement has been delayed. Formula based contracts rely heavily on the contract PX, but spot prices tend to have enough of an influence to affect the outcome.
After the Chinese holiday, sentiment on future oil prices fell, following the release of inventory data that showed expected increases in prices. Paraxylene prices responded with a nearly 6% climb in prices, and have affected downstream markets as well.
The Chinese economy seems to be making some headway after the stock market crash in Q3 of this year. However, the devalued Yuan hasn’t made any improvements yet. Trading in China has resumed now that the holiday week ended Thursday.
MEG prices in Asia have started an upward trend this week, with prices seemingly bottoming out last week. Current prices are still above last month’s average, but the 6% jump in prices coupled with expected increases in crude oil indicate that a price climb is likely underway.
Crude oil prices hovered around $45 per barrel in September. This trend carried on into this month, but by the end of this week, they are picking up closer to $50 per barrel.
European contracts for paraxylene in September settled at €720/mt, down €65/mt from the August contract price. October MEG settled down to €825/mt, while PET contracts had been slipping since the start of July, but the most recent settlement is up $5/mt.
RTi PET Outlook and Suggested Action Strategies
30 Days: Prices are likely at a trough, one that is lower than the minimum after the late 2014 price drops. Market forces are keeping prices somewhat flat. 60/90 Days: Turnaround season will create a weakly supplied market. Oil is also showing signs of increases. Prices will likely respond with increases into November, but should stay well below the yearly average.
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