Weekly Market Drivers for the USA
Resin markets this week were very quiet; there have not been any significant changes to polyethylene drivers since the last report. The following bullets points recap the global drivers.
Secondary market prices remain firm after an early September low. These prices are not expected to be lower in November/December.
Latin America exports continue to balance inventories. This region continues to source North American resin. SEA suppliers are not able to meet the NA price for export to LA.
SEA and China costs remain $0.05/lb to $0.07/lb under the selling price of $0.53/lb to $0.55/lb. Buyers in this region expect firm to higher pricing tracking close to the naphtha movements.
European markets may have finally reaching the global price after a slow decrease of prices through the year.
Ethylene price held this week at $0.23/lb. The spot price is expected to increase as buyers prebuy before the Q1 –Q2 turnaround. As much as 35% more ethylene will be taken off line for maintenance next spring (January to May).
Oil prices were steady all week in the mid to high $40’s.
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, October PGP contract prices settled up $0.005/lb to $0.305/lb.
Subsequent to the settlement spot PGP offers dropped slightly, but there has been very little in the way of transactions. Spot PGP was offered at $0.2775/lb earlier in the week. More recently, there have been bids at $0.2675/lb. Spot RGP is being valued around the $0.18/lb to $0.19/lb range.
Refinery rates were up slightly to 86.4% (US) and 91.4% (PADD3). We are at the point in the TAR season where refinery rates should slowly start increasing as production ramps back up.
Propylene inventories reported by the EIA were up from 4.386 million to 4.44 million barrels.
Lower propane prices have made propane favored over ethane in the cracker. We are hearing that propane is moving back into the feedslate which is positive for supply. We are also hearing that metathesis continues to run despite marginal economics.
Polypropylene continues to be tightly balanced. We are not seeing much excess resin in the secondary markets; however, most converters appear to be fairly well supplied. Buyers, in general, are taking their max contract allowances whether it is all needed or not. There appears to be a slight inventory shift from the producer to the converter.
LBI remains under Force Majeure. It has been difficult to attain an exact restart date for LBI, but several reports indicate that it will be down longer than anticipated. This could create supply issues moving forward.
Contract negotiations are underway for 2016. For contracts that have been fortunate to lag behind the industry in terms of margin expansion, they will be playing some catch-up as contract terms expire. For further details contact your RTi representative.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: Monomer looks to be fairly stable in the next 30 days. Polypropylene prices will likely be increasing with flat monomer and margin implementation. 60/90 Days: The Dow PDH is expected to start during this timeframe. It will be interesting see if Dow keeps their schedule or delays. The additional pounds along with refinery restarts will keep monomer well supplied. By the end of 2015, we think the six cents of margin increase that is currently in play will be largely implemented into PP prices.
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 at least another penny as the degree of supply constriction from maintenance outages underway this month have yet to significantly tighten supplies as the export market remains quite competitive and low priced.
Downward PVC price pressure will likely see more resistance in November and December as feedstocks firm up and the scheduled outage season in October/November for PVC producers concludes.
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 October fractionally lower, tempered by recent outages firming the ethylene spot price over the past couple of weeks and the prospect of storage coming back on line later this quarter.
Ethylene: Prices held this week at $0.23/lb. The spot price is expected to increases as buyers pre-buy before the Q1 –Q2 turnaround. As much as 35% more ethylene will be taken off line for maintenance next spring (January to May).
Chlorine: Spot price ticked up $5/st this week, the first increase since the start of the summer demand season.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Pricing discussions should focus on low feedstock pricing levels (despite the recent uptick from outages) and low export pricing due to well supplied and competitive overseas markets. Export pricing below $0.32/lb is a downward pull on domestic PVC pricing, 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. Market share discussions for next year will be top of mind for producers as the quarter progresses.
Spot PET prices moved higher this week, now floating close to the $0.50/lb mark. Supply and demand was mostly balanced this week, so the main driver of this price increase was an increase in spot in Asia. Cost estimates still predict declines into December despite the recent increases in spot price.
Asia saw some minor increases in demand, prompting the spot price move. Producers in Southeast Asia have responded with a ~10% increase in run rates. In the near future, the market should absorb the stronger supply and prevent any further price climbs in Asia, provided that feedstocks stay stable.
US paraxylene contract price for October is still unsettled. Expectations are for either a rollover from September, or a $0.01/lb decrease. With oil prices retreating from $50 per barrel and inching closer to $45 per barrel, PX prices are likely to decline through the end of the year. Spot prices saw a minor dip of ~1% on the week.
Mixed Xylenes are slightly lower on the week. The MX-PX spread is still favorable, but only barely.
Feedstock production in Asia is somewhat mixed. A Thai aromatics facility recently underwent improvements, and will increase its supply output by almost 20%. A PTA plant in China (2.2 million pounds per year capacity) started back up earlier this week 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. Several PTA plants are running at around 90% of capacity.
MEGlobal announced this week that they planned on manufacturing a large scale MEG plant in the US gulf coast, expected to be completed within a little over three years. The increased supplies will more than satisfy demand at that time, so there will likely be increased exports to compensate.
Asian MEG prices started to decline, with low demand and weak expectations dragging prices lower. China experienced another build in inventory, bringing the total close to 780,000 tons, with more builds on the horizon. Parts of Southeast Asia and the Middle East did not see this sort of build in inventories, however.
RTi PET Outlook and Suggested Action Strategies
30 Days: As reported last week: With turnaround season mostly over, we should expect supply increases pulling down prices. Crude oil has been trending lower this week (edging towards $45/barrel again), 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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