Weekly Market Drivers for the USA
The expected spring/summer ethylene constraints in North America were reduced with Dow’s announcement of a six month delay of their planned spring ethylene plant maintenance. Spot ethylene prices decline nearly $0.06/lb from the March peak to the mid-$0.20’s. The cost to produce ethylene from ethane in NA remains below $0.09/lbs.
Prices in Asia moved higher as ethylene prices increased and supplies tightened due to the seasonal planned maintenance. The market in Southeast Asia and China will be an outlet for any incremental North American PE supply that becomes available through Q2 if prices remain high as they are expected to be.
Secondary markets firmed late March as buying dulled after an early rally that pushed prices up $0.03/lb in March and more than $0.04/lb from the 2016 low mark. Quality off grade resins is offered in the low $0.50’s.
Ethylene: Prices fell this week to the mid-$.20’s and are expected to remain stable as concerns over ethylene supply are removed due to the Dow maintenance delay noted above. Cost to produce ethylene from ethane remains under $0.09/lb in NA.
Naphtha: Naphtha prices increased to $390/mt. It again continues to track closer to with oil movement, showing an increase of almost 25% in March. Cost to produce ethylene from naphtha is $0.30/lb.
RTi PE Outlook and Suggested Action Strategies
30 Days: At this time, the April 1st $0.04/lb increase does not have the market drivers needed to be implemented in April. Without a global disruption or surge in oil prices the increase is expected to be delayed. 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. The opportunity to export globally and tight 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 $0.04/lb increase is dependent on the strength of oil. It should not be implemented until oil prices approach $50/bbl.
In the PP market, PDH unit goes down due to mechanical problems.
We have yet to hear any nominations for April PGP contract prices but expect to see something surface calling for an increase. In addition to the DOW PDH going down, Enterprise was heard having trouble at one of its splitters.
One large polypropylene producer has issued a price decrease for April of $0.03/lb to $0.05/lb depending on grade. This decrease is separate from any movement in PGP prices. We have not seen letters from any other PP producers, but we have seen other producers responding to market conditions with lower prices and margin reductions. This will continue to be a topic for April price discussions.
Imported polypropylene will continue to arrive in April, but prices in the Far East are up $0.08/lb since mid-February. Import prices for May-June arrival are likely to be higher.
Spot PGP is up slightly. Based on today’s values, April contract pricing could settle higher by about $0.02/lb.
Planned and unplanned outages could create pockets of tightness over the next two months.
Countering those outages, refinery rates are up to 90.4% (US) and 94.4% (PADD3).
EIA propylene inventories also move higher from 3.108 million/bbl to 3.283 million/bbl.
RTi PP Outlook and Suggested Action Strategies
30 Days: It is likely that April PGP settles up a couple cents. At least several PP producers have committed to lower prices for April. This will lead to flat to lower PP prices for most buyers. 60/90 Days: Propylene monomer is expected to be flat to higher over the next couple months with supply concerns dissipating after that. We expect to see PP producers give some of their margins back, but to what degree is still debatable. Expect generally flat PP prices during this timeframe.
In the PVC market, producers getting $0.04/lb in March with the remainder in April along with a $0.01-0.02/lb of the $0.03/lb April nomination depending on ethylene, oil and demand. May $0.06 is defensive and opportunistic should the market go tight from outages and unusually high demand.
Increasing prices are supported by:
o Planned PVC outages through April
o Planned ethylene outages through July
o Higher PVC export pricing
o Early start to a stronger construction season.
Not Supporting Full Implementation:
o Added Shintech capacity now online.
o Slower PVC demand growth overseas limiting export demand and price growth.
o Relatively low oil prices limiting how high export pricing can go.
o Challenges in the construction market ranging from a lack of skilled labor, land, and affordable housing builds vs luxury builds that appear to be in oversupply in some regions.
o Pricing power does not seem to be in the hands of the pipe producers, who will need increases to be able to support the PVC increases.
Domestic pricing to move in line with export pricing, which is up from its February bottom by $0.04-0.05/lb.
We have nominations of 5 cents for March, 3 for April and 6 in May. April and May are reinforcing increases should some unexpected outage or demand growth crop up. It will also facilitate pre-buying that in turn could support increases.
Ethylene contract is expected up in March by $0.05/lb, increasing the cost to produce PVC by $0.025/lb.
Higher PVC output in the first 2 months of the year (ACC) is offset by higher exports and flat domestic demand.
Supply & Demand
Supply: Operating rates for the first 2 months are higher than the same period last year. A capacity addition at Shintech is now operational, helping to offset maintenance.
Demand: Domestic demand is up slightly as the construction season gets an early start from mild weather in northern regions. Export demand is again seeing support from higher oil and ethylene turnarounds in Asia.
Chlorine: Spot pricing relatively unchanged since the post summer season price drop in September 2015.
Ethylene: Prices fell this week to the mid-$0.20’s and are expected to remain stable.
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 with the addition of a few cents in April before seeing limits from export pricing. March pricing is expected to be lower than April. 60/90 Days: Stocking in advance of outages/increases is generating additional demand pressure. PVC output is improved over 2015 with fresh capacity additions offsetting some of the maintenance. The wild card is the strength of the construction season.
In the PET market, feedstock contracts for March have settled higher; PET market responds with increases.
Increases in feedstock contracts have reinforced the price increases expectations for current and Q2 PET pricing. There have been some PET increase nominations of $0.03/lb starting in April.
WTI crude oil prices have been coming off a recent peak of $42 per barrel last week with current prices heading towards $38 per barrel.
PET domestic demand has seen some improvement going forward into Q2, but the question is whether it is due to the summer bottling season demand or due to the results of the antidumping/countervailing duties final determinations (which the US International Trade Commission will have their final determination in mid-April), or perhaps a little of both.
Paraxylene: An arbitrage to Asia has opened up for MX, the feedstock for PX. This put upward pressure on domestic PX, due to the fact that increased MX exports will limited domestic MX availability, increasing prices.
PTA: News of a new PTA startup in China has been met with news of a recent PTA shutdown in China, removing the 2.2 million tons per year capacity from the market whilst undergoing maintenance.
MEG: Spot prices have been somewhat volatile this past week in Asia, while domestic MEG was heard nominated up 4-5 cents starting in April.
RTi PET Outlook and Suggested Action Strategies
30 Days: There is no real reason for prices to do anything but climb through Q2. The results from the Final Determinations from the US ITC should have little impact on imports, unless a significant change is made. 60/90 Days: Demand and PET pricing should continue to pick up through May.
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