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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 19/10/2015 (10:17)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, the spot ethylene market represents less than 10% of the polyethylene market and has minimal impact on the integrated suppliers’ profit margins. The cash cost to produce ethylene remains below $0.10/lb due to low cost natural gas and ethane prices below $0.20/gal.

Spot ethylene prices jumped 25% this week to $0.25/lb and is expected to increase as much as $0.10/lb or more due to several contributing factors;

o Ineos cracker is expected to be down a month.
o The Flint Hills maintenance has been extended.
o Strong pre-buying/inventory building for the Q1 turnaround season at very low prices.
o Storage constraints that led to lower prices have been resolved; sellers are not forced to sell at a low price.

Several suppliers are stating effective November 1st; they will implement a $0.05/lb price increase. The letters restate the effective date of the price increases previously announced on June 1, 2015 and will apply to all grades of polyethylene products sold in North America.

Secondary market prices are firm this week as the low priced deals have been removed.

Export pricing FOB Houston is $0.47-$0.49/lb. Latin America remains the primary destination.

Export data reported a slight increase in exports for September. This action will continue to be the mechanism to keep inventories balanced and prices firm in North America. The 20% percent of production is the benchmark; activity below 20% will contribute to an inventory build.

Inventories in September were flat due to the strong export and good North American demand.

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 are getting talked at up $0.005/lb, but we have not heard that this has been accepted market wide. This would put October contracts at $0.305/lb and would be the first increase for contract PGP since February when contracts settled higher by a penny.

Spot PGP was transacted this week at $0.29/lb. Spot RGP is being valued at $0.19/lb with very little transactional data. Based on the $0.29/lb spot PGP trade, the implied contract price would be $0.315/lb.

Enterprise announced a Force Majeure on October deliveries of PGP. Enterprise had two splitters down over the past month. Plus, there have been a couple large FCC units that went down unplanned in addition to the planned refinery TARs. RGP is also being consumed into gasoline via alkylation and cumene production. We are also hearing that RGP is getting diverted into fuel applications. When figuring in freight, the netbacks for RGP in certain regions are at “burn value” type levels.

Despite the Enterprise FM, spot prices for PGP have remained fairly tame.

Propylene Inventories reported by the EIA were down again this week from 4.457 million barrels to 4.386 million barrels.

Refineries are running at 86.0% (US) and 90.3% (PADD3).

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. We are beginning to hear of supply issues from several LBI customers.

Recently posted ACC data showed that demand for PP is still strong. September demand was up by 5.5% from August and was the third strongest demand month of the year. Operating rates for September came in at 92.9% and inventories were down by 45 million pounds. Days of Supply are at a yearly low of 28.9 days.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: PP prices will move up in October by a minimum of $0.005/lb if that is how PGP ultimately settles out. In some cases prices will be moving higher than that due to margin implementation. 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.

The impact of US outages will be defined by export demand/pricing. Low oil pricing and demand weakness led by China are continuing to yield 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.

September exports fell more than production leading to an inventory build that is not unexpected at the start of a planned turnaround season. Domestic demand was stable as exports fell 18% as global availability appears strong despite some outages in other parts of the world and rising spot ethylene pricing.

PVC raw material costs in September fell $0.006/lb with another potential reduction in October now tempered by recent outages raising ethylene spot price over the past week.

Ethylene: Spot pricing started moving back up this week after being under $0.20/lb for nearly three weeks. The cash cost to produce ethylene remains below $0.10/lb due to low cost natural gas and ethane prices below $0.20/gal.

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 for three weeks now.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Pricing discussions should focus on low feedstock pricing (despite the recent uptick from outages) and low export pricing due to well supplied overseas markets. 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 is reducing supply into November as domestic demand will see seasonal declines and export pricing will be held at lower levels. Market direction may be pushed to flat depending on the degree of supply reduction from PVC and ethylene outages balanced against the drop in demand and low cost global supply.

PET costs are expected to stay stable through the end of 2015. Spot prices have increased by a minor 2% this week, however they are still just below the $0.50/lb mark. Asian spot prices were unchanged from last week.

The September contract price for paraxylene settled at $0.43/lb. Meanwhile spot prices have been on a slight, steady incline for the past three weeks, increasing by an average of 1% each week. October contracts for PX are expected to be flat from September, likely keeping PTA and PET from making any significant moves in contracts.

The MX-PX spread is still favorable, encouraging MX based routes to PX. MX prices did see some upward movement, and could attribute to the rise in PX prices.

Turnaround season for many MEG plants in the US are currently over, with the exception of one producer who’s dealing with reactor issues and has delayed the restart.

The 5.9% fall in China’s producer-price index has caused many feeds futures to fall, and had a downward pull on prices.

Recent spot paraxylene prices in Asia are falling, after a jump in prices by the end of last week. Downward moving crude oil along with lower cost mixed xylenes may= continue to bring down paraxylene prices. A Thai aromatics facility recently underwent improvements, and will increase its supply output by almost 20%.

Asian PTA prices started to slip this week due to weaker demand for downstream PET. A tighter supply position kept prices from resulting in a full tumble, however.

A PTA plant in China (2.2 million pounds per year capacity) should be starting back up soon after shutting down for maintenance, but the Dragon Aromatics plant (4.5 million pounds per year) will not be returning after an explosion that occurred back in April. Another plant in China (1.65 million pounds per year) will not come back online due to poor economics.

RTi PET Outlook and Suggested Action Strategies

30 Days: With turnaround season mostly over, we should expect supply increases pulling down prices. Crude oil has been trending lower from the start of this week (which edged towards $45/barrel again, but started picking back up by the end of the week), and prices in Asia are likely to start declining, which could cause PET prices in the near future, despite the recent minor increase in spot prices. 60/90 Days: Initial estimates showed a minor rebound in prices through the end of 2015, however recent developments show a continued descent into December. It is currently predicted as a shallow decline.
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