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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 21/03/2016 (14:40)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, PE resin suppliers announced a $0.04/lb price increase for April 1st. The announcement is in line with the standard method of collaborating with other suppliers to keep a firm stance on the March increase of the full $0.05/lb.

Market Overview

There is a $0.05/lb price increase pending for March. The increase is positioned to be fully implemented due to the surge in oil prices, higher global feedstock costs, strong February exports, and constricted off grade availability.

Increases in oil leading to higher naphtha prices during ethylene maintenance events will allow for global price increases, including North America.

Ten percent of the North American ethylene supply will be down for maintenance late March through July. Tighter supplies are expected to firm PE prices through the end of the season in July.

February exports were 4% above the three year average. The strong pull was due to prices at the bottom. Prices for April export are $0.03-$0.06/lb above the February low.

Feedstocks

Ethylene: Prices were higher again this week as ethylene spot prices reached $0.29/lb. Cash cost to produce ethylene from ethane remains below $0.09/lb.

Naphtha: Naphtha prices are settling near $370/mt. It is now tracking closer to with oil movement, up nearly 15% in March.

Latin America: Latin America prices have increased and suppliers are asking for April increase. Availability has tightened after high volumes reported in February due to heavy trader activity buying very low priced material. The Braskem start up is now expected in June.

RTi PE Outlook and Suggested Action Strategies

30 Days: Off grade buyers need to secure resin needs now. Prices will continue to rise as the March price increase has strong chance of implementation. Contract buyer should ship in March vs. April as the price increase gathers momentum. 60/90 Days: Contract buyers should manage inventory and ship at the end of the month vs. early month to protect from an unexpected increase. Continue this strategy until the market dynamics weaken. Tighter global ethylene supplies will prevent any downward movement through the end of Q2 2016. Expect suppliers to aggressively maintain any price increase achieved. The April increase is dependent on the strength of oil. It should not be implemented until oil prices approach $50/bbl.

Polypropylene imports have been one of the big stories in the NA PP market to start the year. Approximately 68 million pounds were imported in January which is nearly 4% of the NA market. Israel, Korea, Japan, Singapore, Saudi Arabia, and Colombia are the volume leaders. Saudi Arabian pounds are up over 1,100% from 2015. We expect overall volumes to continue increasing. Industry insiders are suggesting that more pounds are currently on the water and due to arrive over the next two months.

In addition to imported pellets, polypropylene based finished goods are making it into the US. This is creating some demand destruction and competitive situations for domestic polypropylene producers. Last year’s talk of margin expansion is quickly shifting to margin reduction. For March, we are seeing prices up $0.015/lb with monomer as well as some rollovers and even price decreases. It is important to note that many of the competitive situations in the market are isolated to commoditized resins and market segments.

Contract PGP did settle higher by $0.015/lb to $0.315/lb for March. Spot PGP is valued at $0.305/lb which is an implied contract price of $0.33/lb. Favored ethane at the steam cracker has cut propylene yields.

Supply and Demand

The ACC has increased NA polypropylene capacity by 325 million pounds for 2016. Operating rates for February came in at 91.6%.

Propylene

The propylene-ethylene spread is down to $0.015/lb, putting metathesis economics at risk.  Refinery rates are increasing but are not enough to counter steam cracker outages and a metathesis rate cut, if that were to happen.

RTi PP Outlook and Suggested Action Strategies

30 Days: Polypropylene prices will be flat, slightly down, or slightly up for March depending on your supply chain dynamic. 60/90 Days: We do not see much room for margin expansion in this timeframe. Monomer movement and margin reductions will dictate price movement from here.

In the PVC market, producers have reinforced the March increase nomination of $0.05/lb with an additional $0.03/lb for April as ethylene and export prices continue higher supported by offshore costs increased by higher oil.

Market Overview

Ethylene contract expected to move up in March by several cents, increasing the cost to produce PVC by $0.02-0.03/lb across Feb/March.

Producers are citing improved demand (Feb was flat, ACC), maintenance (output dropped 8%) and higher export prices as further reason to hike prices. Of these the most indicative is export pricing which has moved up $0.035/lb from its bottom 4 weeks ago, supported by higher oil/ethylene globally.
In the end, the magnitude of the increase will be decided by real/export demand balanced against turnarounds for both PVC and ethylene globally. The appetite for higher priced exports is increasing, leading to expectations of a 3-5 cent increase for March.

Any balance of the 5 cent nomination will be fought for in April along with that month’s nomination. Demand progression to construction is key as well as the success of restarts and any unplanned outages.

Supply & Demand

Supply: Operating rates were lower in Feb. as producers anticipated lower export demand from very low oil that has now reversed itself.

Demand: Domestic demand is increasing as ethylene escalates supporting price hikes. Export demand is again seeing support from higher oil and turnarounds in Asia as domestic demand will be helped by a growth in new housing starts, benefitting from the early spring.

Feedstocks

Chlorine: Spot pricing relatively unchanged since the post summer season price drop in September 2015.

Ethylene: Prices were higher again this week as ethylene spot prices reached $0.29/lb. Cash cost to produce ethylene from ethane remains below $0.09/lb.

RTi PVC Outlook and Suggested Action Strategies

30 Days: The surge in ethylene spot pricing and higher export pricing will support at least partial implementation of the nominated 5 cents increase. March pricing is expected to be lower than April. 60/90 Days: Stocking in advance of outages may generate additional demand pressure. PVC output should improve over 2015 aided by increased capacity and the end of maintenance in June.

In the PET market, rising oil prices alongside bullish expectations for PET raw materials continue to push prices higher.

Market Overview

WTI crude oil prices have been somewhat volatile this week, fluctuating between $36 and $39 per barrel, ending the week at about $40 per barrel. There has been an increase in the weekly average of nearly $4 per barrel since the end of February.

Contract prices for March are still unsettled for PET & feeds; rising spot prices should influence the settlement higher.

PET import data from January has arrived, showing a 13% decrease in total imported PET from January 2015 to January 2016. Imports from China have been virtually non-existent since the antidumping/countervailing (AD/CVD) duties started to take effect back in September 2015. Latin America has shown an approximate 36% increase from December 2015, likely compensating for the reduced imports from regions affecting by the AD/CVD duties.

Feedstocks

Paraxylene: Upstream costs are expected to continue rising through the next few months. Both MX and toluene based routes to PX remain economical.

PTA: Due to the fact that most PTA is formula-based off of PX pricing, PTA spot prices have been increasing with PX.

MEG: A few shutdowns from last week have tightened MEG supplies and pushed spot pricing higher this week.

RTi PET Outlook and Suggested Action Strategies

30 Days: We can expect prices to continue their ascent for the rest of the quarter.60/90 Days: Both the summer driving season and the summer bottling season are upon us, with many buyers getting ahead of the upcoming demand increases. All signs point to more price increases through May. The only variables that are somewhat subject to change are the crude oil price movement and any unscheduled shutdowns that could unexpectedly restrict supplies.
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