Weekly Market Drivers for the USA
There is a $0.05/lb price increase pending for March. The increase is positioned to be fully implemented due to surge in oil prices, higher global feedstock costs, strong February exports, and constricted off grade availability.
Suppliers have announced a $0.04/lb price increase for April. See the RTi 30 Day Outlook for resin strategies.
North America’s ethylene maintenance season has launched and will last through July. It is expected to be one of the largest planned down times is recent years, with ten billion pounds out of the market than 2015.
Dow is delaying their ethylene maintenance until the fall. This change in availability is expected to relieve some upward spot price pressure. Ethylene prices could fall to the mid-$0.20/lbs shortly.
Oil prices reached the 2016 high mark of $40/bbl this week. Naphtha prices also reached the 2016 high of $370/mt, up more than $10/mt since last week.
Several plastic film processors are expected to announce an increase for several market segments this week.
Ethylene: Prices were higher again this week as ethylene spot prices reached $0.325/lb, $0.04/lb higher than last week’s high. Buyers and traders are buying excess pounds in preparation for any potential extended down times. 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.
RTi PE Outlook and Suggested Action Strategies
30 Days: With the March increase expected to be fully implemented, buyers should manage inventories and buy as needed. End of the month shipments could help defer any unexpected price increase. The April 1st $0.04/lb increase does not have the market drivers needed to be implemented in April. 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.
In the PP market, a polypropylene producer issues price reduction letter for April.
March Contract PGP settles up $0.015/lb to $0.315/lb.
One Industry Index reports a margin reduction for March PP. PP imports into US up by 55% from 2015 average.
Secondary market availability remains good with discounted prices.
Imports creating a competitive environment in which many domestic producers have responded by lowering prices.
Supply and Demand
NA PP capacity up 325 million pounds. Total Sales down 0.74% thru FEB.
PP Inventory up 130 million pounds over last five months.
Days of Supply at 32.6 Operating Rates at 91.0 % thru FEB.
Dow pushes out steam cracker TAR dropping ethylene prices.
Propylene-Ethylene turns back positive potentially keeping metathesis running.
Lower oil and propane prices pulling propane back into the cracker feedslate.
EIA propylene inventories up to 3.108 million/bbl.
RTi PP Outlook and Suggested Action Strategies
30 Days: PP price settlements for March vary depending on supplier, grade, and contracted price structure. Imports are grabbing market share, and many suppliers have responded with lower prices. We continue to see more settlements with actual price decreases for March. 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 likely to get $0.03-0.04/lb of the March increase nomination with the remainder in April, along with maybe a penny of the $0.03/lb nomination for April depending on ethylene, oil and demand.
Ethylene contract expected to move up in March by several cents, increasing the cost to produce PVC by $0.02-0.025/lb across Feb/March as chlorine has been steady.
Producers are citing improved demand (Feb was flat, ACC), March/April maintenance (output dropped 8%) and higher export prices as reason to hike prices. Of these the most indicative is export pricing which has moved up $0.04-0.045/lb from its bottom 5 weeks ago, supported by higher oil/ethylene globally.
In the end, the magnitude of the increase will be decided by real demand balanced against turnarounds for both PVC and ethylene globally. The appetite for exports is increasing along with price.
Any balance of the 5 cent nomination will be fought for in April along with that month’s nomination. Demand progression and pricing to construction is key as well as the success of restarts and any unplanned outages.
Supply & Demand
Supply: Operating rates are expected lower in March/April due to maintenance as producers reduce export availability.
Demand: Domestic demand is increasing based on an early spring as ethylene escalation from a busy outage season supports price hikes. Export demand is again seeing support from higher oil and turnarounds in Asia.
Chlorine: Spot pricing relatively unchanged since the post summer season price drop in September 2015.
Ethylene: Buyers and traders are buying excess pounds in preparation for any potential extended down times. Cash cost to produce ethylene from ethane remains below $0.09/lb.
RTi PVC Outlook and Suggested Action Strategies
30 Days: The ongoing surge in ethylene spot pricing and higher export pricing will support a majority implementation of the nominated 5 cents increase. March pricing is expected to be lower than April.
60/90 Days: Stocking in advance of outages is generating additional demand pressure. PVC output should improve over 2015 once we get to May/June aided by increased capacity starting mid-year.
Spot PET prices hold; market awaits March contract settlements for feedstocks.
Contract prices for March are still unsettled for PET & feeds; rising spot prices should influence the settlement higher. Current expectations are for an increase of $0.02-$0.03/lb increase in PET price for March.
WTI crude oil prices pushed towards $42 per barrel this week, currently heading lower towards $39 per barrel.
We are still awaiting the US International Trade Commission’s final determinations for the antidumping/countervailing duties (AD/CVD) that are scheduled to arrive by mid-April. Demand for domestic material has seen some improvement, although it could be influenced by the upcoming summer stronger demand season.
Paraxylene: Recent MX exports to Asia (due to an arbitrage) will tighten domestic supply availability. Restricted MX supplies will increase MX pricing, causing price increases for downstream PX. Toluene based routes to PX are still economical.
PTA: PX supply tightness plus steady demand should keep PTA at a gentle incline for the next few months.
MEG: Rising crude oil, naphtha, and ethylene prices put upward pressure on US and Asia MEG spot prices. Also, MEG demand has surpassed supplies, reaffirming the upward movement in MEG price.
RTi PET Outlook and Suggested Action Strategies
30 Days: Contracts are likely to settle higher for both March and April, mainly in response to higher priced oil increasing raw material costs for PET. Domestic demand is still cited to improve for the near future, especially as the AD/CVD takes affect alongside the summer demand season. 60/90 Days: Forward outlooks still call for gradual increases into May.
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