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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 18/04/2016 (16:54)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, two consecutive months of strong exports contributed to a significant inventories draw. The strength of the export market is supported by tight global feedstocks and polyethylene supply from the results of planned maintenance in Asia that is expected to be completed by June/July.

Market Overview

Resin suppliers have a $0.04/lb increase pending for April. Current market drivers should limit the possibility of any increase in May. Suppliers have been very quiet as of this week regarding any change of position.

Dow announced a $0.05/lb increase for May. This is in addition to the April $0.04/lb. No other resin supplier has followed the Dow announcement.

March PE inventory experienced a draw of nearly 130 million pounds from February.  Exports in March continued to be 4-5% above the three year average of 20% of total PE production.

Feedstocks

Spot Ethylene: Prices were $0.04/lb lower this week near $0.24/lb. Ethylene traders noted good ethylene inventories in spite of record PE production in March. Cost to produce ethylene from ethane remains under $0.09/lb in NA. Eastman, LBI, CP Chem, Ineos and Westlake begin their ethylene plant turn arounds this month. Most are expected to be down 45-60 days. The next scheduled turnarounds are in September.

Naphtha: Naphtha prices continued this week just below $400/mt despite rising oil prices. The cost to produce ethylene from naphtha is $0.30/lb. The spot ethylene price outside the North American market is selling in the low $0.50’s/lb.

RTi PE Outlook and Suggested Action Strategies

30 Days: The $0.04 has demand destruction potential. When the maintenance season ends and the $0.04 is in place, if oil is near $40, the China price will fall and China will be back importing bags into the US market. If oil is near $50, US is protected. 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, April PGP Settles up $0.01/lb to $0.325/lb.

Market Overview

After a quiet first week to April, price discovery is showing lower PP prices are being offered this week. Imported material and growing domestic inventories are creating a competitive market environment.

The fire last week at LBI’s Houston refinery was contained to the coker unit. The distillation unit and FCC were not affected and continue to run. The implications for propylene from this event appear to be limited.

Propylene

EIA propylene inventories showed another large build with levels growing to 3.92 million barrels.

Strong propylene supply coming from the refinery is counteracting losses from cracker and PDH outages.

Metathesis economics support propylene production with an ethylene/propylene spread of roughly $0.055/lb.

Supply & Demand

Total NA PP demand is down 1.42% in 2016

Industry operating rates are averaging 91.2%.

PP Inventories grew by 43 million pounds.

Days of Supply are up to 33.7 days.

RTi PP Outlook and Suggested Action Strategies

30 Days: With PGP only settling up $0.01/lb, most polypropylene prices will settle lower for April. PP producers will be reducing margins by varying degrees on their April prices. We expect to see industry indexes reducing prices for their April published prices. 60/90 Days: We expect PP prices will be flat to down during this time with a small upside risk due to planned outages at the monomer level.

In the PVC market, rising domestic demand, production and healthy exports led to an inventory build as maintenance is offset by increased capacity.

Market Overview

Rising export prices suggest a total domestic market increase of $0.05-0.07/lb in total across March/April.

Further increases in May or June would require either further increases in export pricing driven by either higher oil costs to off-shore production or increased demand.

Oil price pressure from whatever production freeze agreement is reached on April 17th will see offset from oil over-supply expected to persist much of 2016.

NA housing is off to a strong start in February, and China has introduced stimulus programs that could boost demand.

Feedstock costs domestically have not been an issue as ethylene supplies are sufficient so far this maintenance season.

The hurricane forecast is for an average season as the El Nino factor that tends to weaken storms is replaced by La Nina during the season. Landfall is the unpredictable factor.

April and May nominations are reinforcing increases should some unexpected outage or demand growth crop up. It will also facilitate pre-buying that, in turn, could support increases.

Supply & Demand

Supply: Operating rates for the first 3 months are 6% higher than the same period last year even with added capacity.

Demand: Domestic demand is up 3% in Q1 vs a year ago (ACC) as exports are up 22%, leading to total demand up 8%. Housing starts, single family starts and building permits saw substantial gains in Feb.
Feedstocks

Chlorine: Spot pricing saw a minor uptick by about $0.01/lb this week, but is still quite stable.

Ethylene: Prices were $0.04/lb lower this week near $0.24/lb. Eastman, LBI, CP Chem, Ineos and Westlake begin their ethylene plant turn arounds this month. Most are expected to be down 45-60 days. The next scheduled turnarounds are in September.

RTi PVC Outlook and Suggested Action Strategies

30 Days: The surge in ethylene spot pricing has reversed (but the maintenance season has a long way to go) leaving export pricing and overall demand the primary price drivers with a few pennies more of increase likely in April. May is expected flat to modestly up, with buying ahead a month at May prices a good hedge. 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. This balancing act could tilt into price reductions by Q3, but for June more likely flat.

In the PET market, raw material cost outlooks could show signs of easing; Summer bottling and summer driving seasonal demand are the main drivers of any price increase nominations.

Market Overview

The domestic PET market was mostly stable this week, keeping spot pricing mostly flat. This may be short lived as seasonal demand for PET (via the summer bottling season) and shortened supplies of upstream MX (via the summer driving season promoting gasoline blending for MX over PX conversion) could push PET pricing higher.

OPEC will be meeting next week in Doha, Qatar to discuss whether or not they will freeze oil production at January levels. Current expectations are mixed, and there is doubt that their decision will have any significant impact on crude pricing due to the fact that there still is a global oversupply that is keeping pricing relatively low.

Crude oil prices this week managed to touch near $43 per barrel at its highest, after trending down towards $41 per barrel by the end of the week. The weekly average is roughly $5 per barrel higher than last week.

Feedstocks

Paraxylene: Upstream MX pricing stable with muted trading. Expectations are for mild PX increases through Q2 as the driving season approaches (restricting MX supplies) and possible higher oil prices due to lower oil production by OPEC.

PTA: Two Chinese PTA facilities are to undergo planned maintenance; a 1.2 million mt/yr at the end of April and a 1.25 million mt/yr in May.

MEG: Saudi Kayan’s 566,000 mt/year MEG facility completed maintenance earlier this week after being shut down since the start of March.

RTi PET Outlook and Suggested Action Strategies

30 Days: Even though raw material cost outlooks show signs of easing, rising demand should support price increase nominations. Crude oil prices will still influence pricing, as well as the Asian PET market fundamentals. 60/90 Days: If the raw material costs don’t slow price increases, then we shouldn’t see any easing until Q3, mainly as the demand season starts to wane and new domestic capacity starts to come online.
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