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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team -
  • 07/12/2015 (15:26)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, the most recent change in the global polyethylene markets will be the impact of continued price decreases in China. The Chinese PE price is now at the lowest price since Q1 2009 and only $0.05/lb above the Q4 2008 low. Soft demand and lower oil prices continue the downward pressure in China and SEA.

Export pricing is expected to be challenged by year end and could influence inventories if new lower export prices are not addressed by North American suppliers.

Spot ethylene prices remained near a twelve month low this week in the low $0.20’s/lb.

The December $0.05/lb polyethylene price increase will be delayed until January 2016, according to RTi sources.

Secondary markets distributors and brokers continue to claim tight supplies and increases in prices since October. Export activity will have a direct impact on resin availability Q1 in the secondary market.

Export volumes saw another downward swing on the month.

The main resins behind this movement were HDPE (down 15% from September) and LLDPE (down 22% from September).

We can see this in the stronger domestic demand, which accounted for a greater percentage of production than exports did for October.

LDPE volumes stayed consistent with the previous month, and didn’t deviate very far from the three month average.

In terms of export region, was saw increased exports to China (22%) and Latin America (14%), but also decreased exports to Europe by about 20%.

The 20% percent of production is the benchmark; activity below 20% should contribute to an inventory build. However, October exports were near 15% of total PE production and inventories were reduced.

Inventories in October were reduced due to the strong export and good North American demand.

October experienced another draw for the second month in a row, this time at 150 million pounds.

Days of inventory for total PE fell below the 30 mark, but still 3.6 days off of the three year average.

Demand rates across the board were noticeably high, each touching near 100%, while operating rates reached above 95%.

Ethane: Prices have been trending down throughout November. Current prices are approximately 11% lower than the end of October prices. A similar story could be said about natural gas, but it’s only applicable to monthly averages, as current prices are within 1% of the end of October prices.

Ethylene: Spot prices on average for the month moved up, $0.01/lb, however current spot has moved lower towards $0.20/lb. Contract prices for November firmed plus $0.25/lb to $0.2850/lb. There were some mild disruptions (unplanned outages for Dow and FHR) which attributed to the uptick in spot/contract prices price. Supplies remain healthy.

RTi Polyethylene Outlook and Suggested Action Strategies

30 Days: There are no drivers to support any announced or pending increase at this time. Reduced inventories may prevent any late year domestic or export price 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. Q1 2016 should remain at December prices. It is reasonable to expect suppliers to continue to pursue increases, as they 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. Heavy Q1-Q2 ethylene schedule maintenances beginning in February should increase the spot ethylene prices; it will not affect the polyethylene prices. Spot ethylene activity will be a leading indicator if supply issues develop.

In the PP market, the December US PGP contract price has been nominated up $0.01/lb. We have heard any indications that it is close to settling.

Spot PGP traded earlier in the week at $0.29625/lb (December) and $0.30/lb (January). Spot PGP was recently being bid at $0.295/lb and offered at $03025/lb. Spot RGP is valued at $0.18/lb to $0.1875/lb.
FHR’s PDH unit is up and running from a recent maintenance shutdown. We have heard reports that Dow’s PDH unit is on and possibly taking feed. Saleable pounds are not yet confirmed and likely a little ways out.

Refinery rates are up from 92.0% to 94.5% (US) and 93.3% to 95.9% (PADD3). FCC outages are also complete.

Propylene inventories reported by the EIA are down to their lowest levels of the year at 3.091 million barrels. Metathesis is reported running, and we believe inventories will begin to build in coming weeks.

Price increase letters from several polypropylene producers surfaced over the past week. All are asking for $0.06/lb above the movement in monomer. Exxon, LBI, and Braskem letters call for January 1st implementation. We expect letters from other producers will follow.

Ineos has announced a Force Majeure out of their Carson, CA PP facility due to a feedstock situation.
It has been reported that LBI has lifted their PP Force Majeure that originally announced on October 7th.

RTi Polypropylene Outlook and Suggested Action Strategies

30 Days: We expect PGP to settle flat to up $0.01/lb for December. PP prices will move higher with any increase in monomer plus margin expansion that is still in various stages of implementation.
60/90 Days: Monomer supply should begin to improve in the coming weeks. This could lead to downward pressure on prices, although the downside is limited. PP prices will be flat to higher.

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 $0.29/lb.

Downward PVC price pressure is expected to produce a reduction of at least a penny in either November or December that producers are looking to fend off with a 2 cent increase nomination for January. Negotiations for market share in 2016 suggest otherwise. Resistance to decreases from fractionally higher feedstocks in Q4 has been converted to arguments about higher ethylene in 2016 based on a heavy cracker maintenance schedule and a hope for increases in construction demand over 2015.

Raw material supplies are improving, with ethane and ethylene spot pricing lower as producers come back on line, portending an ethylene contract reduction in December as November turned to a fractional increase on a stubborn spot ethylene price that did not decline until after the end of the month on restarts.

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 both the domestic and export market.

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

PVC raw material costs in Q4 have been essentially flat with fractional movement in feedstock.

Ethylene: Spot prices on average for the month moved up, $0.01/lb, however current spot has moved lower towards $0.20/lb. Contract prices for November firmed plus $0.25/lb to $0.2850/lb. There were some mild disruptions (unplanned outages for Dow and FHR) which attributed to the uptick in spot/contract prices price. Supplies remain healthy.

Chlorine: With the summer high demand season over, prices are stable at lower winter prices, and have stayed mostly unchanged on the month. Prices shouldn’t make their yearly climb until March or April of 2016.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Pricing discussions should focus on low feedstock costs now, not on producer forecasts for higher costs and greater demand next year. Low export pricing supports the cause, due to well-supplied and competitive overseas markets. PVC cost to produce is 15% to 20% lower than 2014 even as producers complain about margins. 60/90 Days: Domestic demand will remain slow into the early part of the year with some potential for stocking in advance of cracker outages and anticipated growth in construction demand. PVC operating rates should improve over last year along with added capacity. Market share discussions for next year and the pull of low export prices will be top of mind for producers as we negotiate for 2016 share.

In the PET market, the raw material cost estimate is on track going into December, closing on a soft trough. This is evident in recent spot prices, which have been coming down gently each week throughout November. January is still likely to see a very slight incline.

PET and it’s feedstocks’ contracts settled for November:
o PET: down $0.01/lb at $0.685/lb to $0.695/lb split
o PTA: down $0.0067/lb at $0.4212/lb
o PX: down $0.01/lb at $0.41/lb
o MEG: down $0.0106/lb at $0.3553/lb

Domestic demand was expected to make some improvements after the antidumping determinations back in October, seeing how imported materials became less encouraged from China and India, but demand made only very minor improvements. Instead, import demand shifted over to countries like Brazil and South Korea.

Asian PET prices have been slipping since the end of October, which have had an effect on US pricing. Declining feedstocks coupled with weakened demand have put downward pressure on PET.

To compensate for the low demand, several producers in Asia have reduced their run rates even further, most of which are operating at around 75% (plus or minus 5%).

PX: Spot prices in both US and Asia have been mostly stable since August. US production economics via the mixed-xylenes route floated around favorable throughout November. Asian prices typically reacted to oil prices, which also didn’t make any significant changes during November.

PTA: Similar to PX, PTA didn’t fluctuate much for November. But as far as supplies are concerned, BP announced that they will be selling their 1 million mt/year PTA facility in Alabama, as well as that they will be upgrading their South Carolina and Belgium PTA plants.

EG: While US prices felt the same stable nature of both PX and PTA, Asian prices continued down their steady decent that started around September. Many traders have expectations for further decreases in the future and are holding out on making any decisions. Until then, spot prices in Asia have been trying to compensate for the lack of activity by moving lower.

RTi PET Outlook and Suggested Act ion Strategies

30 Days: The stability in the spot market is in line with the forecasted raw material costs. We should continue to see lower prices for the rest of the year, before ticking back up ever so slightly in January.
60/90 Days: Even though prices may start to move back up at the start of 2016, they are still historically quite low. The only other time prices have dropped this far is the initial oil price tanking back at the end of 2014. The highs of 2015 are lower than the lows of 2013, 2012, and 2011.

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