Weekly Market Drivers for the USA
Resin suppliers have a $0.04/lb increase pending for April. It appears to be set for full implementation despite opposition and global fundamentals.
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.
Pemex resin allocation due to tight ethylene is driving Mexican and Latin American processors to buy from North American inventories. This activity may further strain inventories after several months of strong exports.
Secondary markets are reporting one of the lowest volume months in 16 months.
China resin demand is near a six month low and has no indicators of short term improvements.
Spot Ethylene: Prices were flat this week with mild activity, prices were slightly higher near $0.26/lb. 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: For the third week in a row, Naphtha prices continued 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 $0.53’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, the US is protected. 60/90 Days: If the $0.04/lb is implemented, contract buyers should manage inventory and ship at the beginning of the month vs. late month to protect from an eventual expected decrease. Expect suppliers to aggressively maintain every price increase achieved. The duration of the April $0.04/lb increase is dependent on the strength of oil and resin availability.
In the PP market, PP prices to settle lower for April.
Spot pricing in the secondary continued to move lower this week with steep discounts developing for certain grades.
Homopolymers are more abundant than copolymers. Discounts for copolymers are there, just not as large as what the market is seeing for homopolymers.
Total notified customers this week that they successfully completed repairs to their Train 9 reactor at LaPorte, and as such, will be lifting their sales control on copolymer products.
P66 should be finishing work on their downed line by late April or early May. This will bring supply back to copolymer product as well.
EIA propylene inventories were stable at 3.9 million barrels.
FHR’s PDH unit is up and running again. Dow’s unit remains down but is expected to restart by early May.
Enterprise will be taking down another propylene splitter for repairs.
Spot PGP moved higher this week by about a penny to $0.30625/lb.
RTi PP Outlook and Suggested Action Strategies
30 Days: Polypropylene prices will settle lower for April despite the $0.01/lb increase in contract PGP. We are hearing that industry indexes will report margin reductions of $0.03/lb to $0.05/lb.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, a fatal explosion Wed. at a Mexichem VCM plant removes nearly 1B lbs of capacity for an unknown period. Expected impact is; higher US export demand and higher export pricing, likely to support PVC increase in April and part of May.
Rising export prices suggested a total domestic market increase of $0.05-0.07/lb in total across March/April before the explosion. Without a timeline for restart, we estimate $0.08-$0.10/lb across Mar/Apr/May as other producers are expected to join in the May increase nomination.
VCM/PVC maintenance through April will not help, but the Shintech capacity expansion should help soften the blow.
The threat of further price hikes will drive domestic demand higher with inventory building on top of seasonal demand increases.
Oil is an issue that will be pushed to the background as an oil production freeze was not agreed to at the meeting this past weekend as the market found new excuses for volatility. Consensus is building around the reduction in US shale oil output ultimately eating into oversupply and pressuring prices higher.
Supply & Demand
Supply: Operating rates for the first 3 months are 6% higher than the same period last year even with added capacity. VCM outage in Mexico will drive US exports & pricing.
Demand: Domestic demand is up 3% in Q1 vs a year ago (ACC) as exports are up 23%, leading to total demand up 8%. Housing starts and permits fell by high single digits in March from Feb, although up from a year ago when worse weather was to blame.
Chlorine: Spot pricing this week held on to a $0.01/lb premium over the stable March prices.
Ethylene: Prices were flat this week with mild activity, prices were slightly higher near $0.26/lb. Cost to produce ethylene from ethane remains under $0.09/lb in NA.
RTi PVC Outlook and Suggested Action Strategies
30 Days: The Mexico VCM outage is expected to apply upward pressure on the market compounded by maintenance and season demand. New capacity will help, but expect additional price increase nominations for May and buy ahead at April pricing. 60/90 Days: As restart of Mexico VCM becomes clearer and maintenance ends for PVC, we expect to enter calmer waters by June. Focus suppliers on expanded capacity while maintaining an eye on export price progression and demand. The wild card is the strength of the construction season.
April PET price increases expected around $0.02-$0.03/lb in response to stronger demand and higher feedstock pricing.
Spot pricing remained mostly stable this week, reacting to a mostly stable market both domestically and in Asia.
WTI crude oil prices moved closer to $45 per barrel halfway through the week and have since eased to $43 per barrel. At its peak this week, crude was about $3-$4 per barrel above last week’s average.
Throughout the antidumping/countervailing investigations there were expectations for a shift from imports from affected regions to stronger domestic demand, however this has not been the case.
Domestic PET pricing still holds on to a large premium over import pricing (approximately $0.10-$0.15/lb above imports), which has discouraged domestic sourcing in favor of imports from other regions such as Taiwan, Thailand, South Korea, and Brazil.
Paraxylene: An initial April PX contract settlement was heard at around $0.40/lb, up $0.02/lb from March.
PTA: Formula based PTA should put the April contract price at $0.4209/lb (+$0.0235/lb from March), should the PX contract fully settle at $0.40/lb.
MEG: Pricing has been steady while supplies have been improving slightly as many facilities have started to exit the turnaround season.
RTi PET Outlook and Suggested Action Strategies
30 Days: Current expectations look for modest increases in PX and PTA with easing in MEG, which should keep PET pricing close to flat in May, considering a potential 2-3 cent increase for April. 60/90 Days: There aren’t too many drivers for price changes heading into June. The main variable to look for is crude oil, especially considering the somewhat volatile week we had.
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