Weekly Market Drivers for the USA
Two influential market commodity resin; LLDPE butene and HDPE blow molding availability is limited. This may contribute to the PE market sustaining pricing into January and February.
Recently released US Government October export data reverses the original October export data. This explains the October inventory draw surprise; total PE exports increased ~6% from September vs. the October report of a ~4% decrease.
Secondary market activity is report as inactive, due to the October and November restocking of processor inventories
Inventories in November increased 50 million pounds, with exports closer to 23% of production.
Ethane: Prices have been trending down throughout November. Current prices are approximately 11% lower than the end of October prices.
Ethylene: The Westlake LDPE outage prompted a big spot ethylene sell off; prices fell to a five year low near $0.18/lb.
Exports: November exports continued to be above average. However, December exports will be challenged by soft global demand and falling global prices.
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. Lower oil prices and market direction prior to the Chinese New Year will influence Q1 prices. 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. 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/bbl. Current 2016 oil published forecasts range from the low to high $50/bbl 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. However spot PGP prices have been firm between $0.29/lb and $0.30/lb this month.
Expectations are for a roll over or a nominal increase of about $0.005/lb for December.
Spot RGP is valued at $0.18/lb to $0.19/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 down from 94.5% to 93.1% (US) and 95.9% to 94.5% (PADD3).
Propylene inventories reported by the EIA fell again this week to 2.962 million barrels, once again to the lowest levels we have seen this year. Metathesis is reported running, and we believe inventories will begin to build in coming weeks with softer seasonal demand.
PP demand dropped 3% from October to November and was 3.8% below the average for 2015.
Export demand hit a new low at only 15 million pounds for November while imports are up over 100 million pounds YTD relative to 2014 levels.
However, November PP production was the strongest we have seen all year at 96.6% operating rates resulting in an inventory build of 110 million pounds for the month.
That being said, more producers have jumped on the price increase band wagon for January. With the exception of Pinnacle asking for an addition penny on all copolymer PP grades, all are asking for $0.06/lb above the movement in monomer. Exxon, LBI, Ineos, Pinnacle, P66 and Braskem letters call for January implementation. We expect the rest of the industry will follow.
Ineos has announced a Force Majeure out of their Carson, CA PP facility due to a feedstock situation. Sources tell us they could be down to late January or early February.
RTi Polypropylene Outlook and Suggested Action Strategies
30 Days: We expect PGP to settle flat to up $0.01/lb (worst case scenario) 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.
PVC producers defensively nominated a 2 cent increase for January designed to prevent price erosion and establish a starting point for a busy cracker maintenance season that is expected to elevate ethylene pricing. However, the ink was hardly dry before a PE outage flushed extra ethylene into the market dropping spot prices $0.04/lb and oil collapsed by $7/bbl.
November operating rates recovered by nearly 10% to 77% as increases in exports offset seasonal declines in domestic demand. Inventories saw a build of 10% as production exceed demand according to ACC data. Production is averaging 3+% lower this year as total demand is down 2+%.
Export pricing continuing below $0.30/lb allowed for a 37% increase in exports for November as supplies improved. These pricing levels continue to act as a downward drag/anchor on domestic PVC pricing.
Downward PVC price pressure is expected to yield a reduction of at least a penny by year end that producers are looking to fend off with a 2 cent increase nomination for January. Negotiations for market share in 2016 suggest otherwise.
PVC supplies will improve in NA through the end of the year as demand will continue to be slower due both to seasonality and limits to export growth given a slower Asian economy that has more to sell for lower cost.
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.
The collapse of 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 are now expected to see a December dip of at least $0.005/lb on lower ethylene.
Ethylene: Ethylene prices took a bit of a nose dive this past week, falling as low as $0.1775/lb, before rebounding to $0.185/lb. There was an unplanned outage at a Westlake facility which shut numerous
PE lines down, thus creating excess ethylene and a sell off.
Chlorine: Spot prices are still stable from the last ten weeks (~$200/st).
RTi PVC Outlook and Suggested Action Strategies
30 Days: Pricing discussions should focus on even lower ethylene pricing and improved supply from the end of maintenance. Low export pricing supports the cause. 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 early 2015 along with added capacity.
Spot PET moved slightly lower this week, still hovering around half a penny per pound.
Future cost estimates are still on track with lower prices through December, although we could see flat prices moving into January instead of a slight uptick. The previous increase expectation has been delayed until February. Oil prices dropping below $40 per barrel (with current prices closing in on $36 per barrel) is the main driver of this expectancy.
Domestic demand has made some very minute improvements since the antidumping duties made imports from various regions less favorable, making domestic and alternate import sources more economic.
A weak outlook on market dynamics coupled with declining feedstocks has put downward pressure on Asian PET pricing.
Many Asian producers are still operating at reduced rates (70-80% of capacity) due to reduced margins from low PET resin prices.
Higher seasonal demand in Q2-Q3 of 2016 is expected to bring up PET from its current low levels for both NA and Asia.
The MX-PX spread moved into unfavorable territory, as aromatics prices rose on the back of increased RBOB prices. MX supply has also been pegged as tight.
MEG prices in both Asia and NA have been flat to down for the past few weeks.
In production news, Taiwan’s Nan Ya Plastics MEG facility (720,000 tons per year capacity) will shut down due to weakened margins.
RTi PET Outlook and Suggested Action Strategies
30/60 Days: Buyers should be enjoying near-historic low prices for PET resin this quarter. January still doesn’t show any signs of any major upswing, especially seeing how oil prices are moving for the past month. 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. Seasonal demand will start to pick up prices steadily, starting as early as March. But the question is by how much prices will react, given supply/demand fundamentals as well as the price of oil at that given time.
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