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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 23/11/2015 (18:27)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, oil and naphtha prices are the leading drivers for global prices. Continued price uncertainty and soft global demand will be the focus for the balance of 2015 and Q1 2016.

Naphtha tightness in Q4 due to global turn arounds is possibly the only support that maintains prices if oil continue the decline in the short term.

U.S. Energy Information Administration (EIA) Forecast West Texas Intermediate (WTI) crude oil prices average $4.00 per barrel lower than the Brent price in 2015 and $5.00 lower in 2016. The current values of futures and options contracts for February 2016 delivery (Market Prices and Uncertainty Report) suggest the market expects WTI prices to range from $35 to $66 per barrel in February 2016.

The RTi oil pellet formula should continue to gauge pricing with oil changes; every $10 per barrel change equates to $0.04-$0.05/lb polyethylene price change, either direction.

Spot ethylene prices declined this week to the low $0.20’s/lb after a very stable two months.

Poor demand in China is impacting both Europe and SEA. Price increase attempts continue to be thwarted by improving supplies and poor demand concerns.

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

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

RTi Polyethylene Outlook and Suggested Action Strategies

30 Days: There are no drivers to support any announced or pending increase at this time. Suppliers will test the secondary markets through the end of the year with higher prices. Strong demand and reduced inventories will prevent any late year discounts. 60/90 Days: Manage inventories to meet demand. Strong North America demand would normally be a price increase driver; however weak global feedstocks and improving inventories will prevent this. 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 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.

In the PP market, November US PGP contract price – fully settled up $0.01/lb to $0.315/lb.

Spot PGP traded down slightly this week to $0.29/lb, while RGP traded a penny lower at $0.18/lb.
Far East Asia - Spot PGP FOB Korea $584/mt ($0.265/lb). Spot PGP CFR China $619/mt ($0.281/lb).

FHR’s PDH unit is down for maintenance and should return to operation soon.

Refinery rates in the US were down slightly to 90.3% (US) and up to 92.7% in PADD3.

Propylene inventories reported by the EIA were basically flat from last week, at levels of 3.689 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.

PP imports continue to grow as domestic prices continue to climb. Talks of significant margin grab with new supply contracts for 2016 will continue to incentivize US processors to look offshore for competitive pricing and additional supply options.

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, below $0.30/lb.

Downward PVC price pressure is expected to produce a reduction of at least a penny in either November or December. Resistance from higher feedstocks is now dissipating and will be assisted by end of year deal making and improved supplies as the scheduled outage season concludes.

Raw material supplies are improving, with ethane and ethylene spot prices moving lower as producers come back on line, portending another ethylene contract reduction in November.

With only one outage to be completed, PVC supplies will improve in NA through the end of the year as demand will continue to be slower due both to seasonality and exports to a slower Asian economy that has pressured pricing in that region lower.

Between the Shintech expansion this quarter and 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 to improve the consistency of supplies to the market.

Even lower oil pricing and weaker demand led by China are continuing to yield even lower 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 lower by as much as $0.005/lb.

Ethylene: Spot prices have dipped a little with prices down to $0.2175/lb. There is some concern that prices will start to escalate starting in Q1 because of a very heavy TAR season in Q2. Producers who have units going down will want to start stock piling material. Almost 20% capacity is expected to be shut down during the TARs.

Chlorine: Still stable from the last seven weeks in terms of spot price (~$200/st), with a December trade heard at the same amount.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Pricing discussions should focus on lower feedstock pricing levels and low 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: Domestic demand will see 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 we negotiated for 2016 share.

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.

Since feedstocks seem to continue their descent through most of this month, we could see lower contract settlements for November.

Spot prices didn’t see much movement from last week. Mostly balanced market dynamics kept prices from making any significant changes.

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

WTI crude oil has been near $40 per barrel this week, which should put some downward pressure on domestic feedstock prices.

The MX-PX spread moved into a favorable range this week.

BP has announced some changes in their PX/PTA production:

•   Selling its Decatur facility in Alabama (1 million tons per year capacity)
•   Investing $200 million in PTA plant upgrades
•   Reports of spending reductions of about $18 billion by 2017
•   These changes coincide with new strategies that focus more on large scale production with lower costs that ensure better economics as well as lessening their impact on the environment.

Rising ethylene prices (up ~5% from last week) in Asia had very little effect on MEG prices, which has fallen about 5% since the start of the month. Supplies were also on the weaker side due to outages. So the main driver of this descent in price is the lack of demand, which overcame tightened supplies and increased costs.

RTi PET Outlook and Suggested Action Strategies

30/60 Days: Spot prices may have started to stabilize, while contracts look like they could easily settle lower for this month, supported by lower priced feedstocks and decent market conditions. 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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