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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 16/11/2015 (15:33)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, inventories in October decreased 150 million pounds due to strong North American demand. Exports were below the average of 20% (near 15% of production). An inventory draw in conjunction with below average exports is a strong indicator of good domestic demand.

Inventory draws and reduced exports is a scenario seldom experienced in the PE market, and is a development that needs to be carefully monitored. Whether or not pre-buying and restocking at low prices contributed to the scenario will be settled in the next few inventory and export reports.

The November $0.05/lb increase is delayed until December.

Secondary markets distributors and brokers are claiming tight supplies and increases in prices since early October.

Exports continue to move to Latin America. Warehouses are backed logged again delaying exports from the September activity. Exports in October were well below the average. (See RTi Inventory Report Nov. 13th)

SEA and China prices have weakened due to soft demand and new supply in China. China’s coal to olefins (CTO) projects is starting to produce LLDPE, resulting in a resin surplus that is limiting the exports into China.

Europe pricing continues to be firm with expected price increases due to high feedstocks.

North America feedstocks continue to remain stable and healthy. Spot ethylene priced at $0.23/lb and ethane at $0.19/gal.

RTi sources reported the Braskem Nachital, Mexico plant is expected to be in production of LDPE and HDPE by the end of Q1 2016. The plant capacity is expected to produce near two billion pounds annually.

RTi Polyethylene Outlook and Suggested Action Strategies

30 Days: There are no drivers to support a December increase at this time. Suppliers will test the secondary markets through November with higher prices. Strong demand and reduced inventories will prevent any late year discounts. 60/90 Days: Manage inventories to meet demand. Watch for upward changes in oil prices, for this 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 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 per barrel in 2016. Heavy Q1-Q2 ethylene schedule maintenances beginning in February should increase the spot ethylene prices; it will not affect the polyethylene prices.

November US PGP contract price fully settled up $0.01/lb to $0.315/lb.

Spot PGP traded earlier in the week at $0.295/lb, recently offered at $0.29/lb. Spot RGP traded at $0.19/lb.

FHR’s PDH unit is down for maintenance and should return to operation in about one week.

Refinery rates in the US were up slightly to 89.5% (US) and down to 91.1% in PADD3.

Propylene inventories reported by the EIA were down again from 3.731 million to 3.687 million barrels.

Dow is projecting a year-end start-up of their new PDH unit. There is speculation that a year-end start is unrealistic. When it does arrive, this unit will add approximately 1.6 billion pounds of new propylene supply to the market.

Williams recently announced they will be proceeding with the next phase of development with its planned PDH unit near Edmonton, Alberta. Williams has signed an agreement with NAPP who will be building a polypropylene plant adjacent to the PDH. Planned start-up of both the PDH and PP units is late 2019.

Formosa is in the process of doing partial maintenance at their Point Comfort, TX polypropylene plant. A few delays have been reported.

LBI has restarted their PP units in Bayport, TX according to LBI CEO Bob Patel. The Force Majeure declaration remains in place for the immediate future.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: We are expecting that the current firmness in propylene will relax as unit restarts occur. Polypropylene prices will increase with monomer at a minimum and up to 3-5 cents more with margin expansion. 60/90 Days: Current projections for the balance of 2015 are for stable to lower propylene prices along with stable to higher PP prices. 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.

In the PVC market, despite operating rates below 70% from planned maintenance in October, substantially lower exports and minimally higher domestic demand there continued to be downward PVC pricing pressure from low export pricing in November as export prices remain below $0.30/lb.

With only one outage to be completed, supplies will improve substantially through the end of the year as demand will continue to slow seasonally and economically in Asia.

Between the Shintech expansion this quarter and the Axiall next quarter, PVC capacity will increase by roughly 3% over the next 6 months, and by 4.5% over the next 12 months if we roll in Part 2 of the Shintech expansion. Hopefully the capacity addition will combine with better operating rates in 2016 (plenty of breakdowns in 2015) to improve the consistency of supplies to the market.

Downward PVC price pressure may see some resistance later in the quarter as feedstocks firm up (ethylene is averaging 2 cents higher this month) but will be offset by end of year deal making and improved supplies as the scheduled outage season concludes.

Even lower oil pricing and weaker demand led by China are continuing to yield low priced acetylene/ethylene/PVC competition for US exports.

October exports fell 22% as domestic demand moved up a modest 3% on lower pricing. Overall demand fell 4% in preliminary ACC numbers as estimated inventories moved lower by a more substantial 22% to their lowest point in 3.5 years. Rebuilding of inventories will be facilitated by slower seasonal and economic demand.

PVC raw material costs in October edged fractionally lower as November is expected flat to fractionally higher.

Ethylene: North America feedstocks continue to remain stable and healthy. Spot ethylene priced at $0.23/lb and ethane at $0.19/gal.

Chlorine: Chlorine continued to be flat this week, adding to a seven week long period of stability.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Pricing discussions should focus on continuing low feedstock pricing levels and even lower export pricing due to well supplied and competitive overseas markets. PVC cost to produce is 15% to 20% lower than last year even as producers complain about margins. 60/90 Days: Scheduled maintenance is reaching the end of the schedule. Domestic demand will be in seasonal decline and export pricing will continue at lower levels. Market share discussions for next year and the pull of low export prices will be top of mind for producers as the quarter progresses.

The October contract price for PET settled at $0.685/lb to $0.695/lb, which is $0.015/lb lower than September. Decreases in feedstocks were the likely cause of the decline.

Spot prices came back down a penny this week, still hovering around the $0.50/lb mark for nearly two months now.

Domestic demand saw a minor increase, but not as much as expected following the antidumping duty determinations that made several import regions unviable.

Cost estimates are mostly unchanged, still showing December as a low cost month, with a slight uptrend into January.

Paraxylene spot prices barely moved upward, mostly following Asian prices.

Tightening mixed xylene supplies pushed price upward. This has caused the MX-PX spread to tighten even further, straying away from favorability in terms of production economics.

Asian PET prices started a slight slip from last week, reacting to lower cost feedstocks and weaker demand. This may cause more operating rate cuts in the near future to compensate for the reduced margins.

An oversupply of MEG in China has pulled prices downward despite a small number of outages. US supply on the other hand is somewhat tight, with at least two facilities (Equistar & Hunstman) suffering for issues that have reduced their output.

The Asian PX contract price made its first settlement since May of this year at $780/mt.

Yisheng restarted its 3.75 million ton per year PTA facility in China this Thursday after two and a half weeks of maintenance.

RTi PET Outlook and Suggested Action Strategies

30/60 Days: The lower priced contract settlements for October is a good sign, showing that at least contracts are reacting to market conditions and feedstock prices. Spot pricing should ease into next month, following the expected cost estimates, however crude oil is still a strong determinate on resin pricing. 90 Days: Costs should start to tick back up going into January. That doesn’t necessarily mean that prices will follow, but it does give a reason for them to. Keep an eye on the Asian market as well as crude oil which may influence future prices.
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