Weekly Market Drivers for the USA
China and Asian resin prices declined again this week. Further potential decreases will track with oil prices as plant maintenance projects are completed through May/June. China resin demand is near a six month low and has no indicators of short term improvements.
The $0.10/lb price delta needed between the NA price and other regions to maintain a global price balance will be tested if oil price remains near $40/bbl. Film markets are expecting competitive quotes from China and other SEA manufactures.
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.
Mexico’s central resin supplier Pemex placed resin allocations due to tight ethylene. This action 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 market activity was the lowest of 2016. Prices are up an average of $0.04/lb. from the February low.
Spot Ethylene: Moderate trading activity this week. Markets are settled after covering all the ethylene needs during turnarounds. Cost to produce ethylene from ethane remains under $0.09/lb in NA.
Eastman, LBI, CP Chem, Ineos and Westlake began 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 fourth week in a row, Naphtha prices continued just below $400/mt as oil prices were calm this week. 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 increase has extreme demand destruction potential. As the global maintenance season ends with the $0.04 is in place, and if oil is near $40/bbl, the China price will fall and China will be back importing bags into the US market. Only if oil is near $50, will the US be protected from imported finished products. 60/90 Days: With the $0.04/lb implemented, contract buyers should manage inventory 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 and should not last longer than then 90 days.
PP prices shed margin in April.
Market indexes show lower polypropylene prices for April despite rising feedstock costs. On average, PP prices are down $0.02/lb to $0.04/lb this month. Some buyers saw the bulk of the decrease in March which limited their decrease in April.
There is still a good amount of spot material in the secondary markets, consisting of domestically produced pounds and imported material. Homopolymer grades continued to see steep discounts, even compared to the lower contract prices. Copolymer discounts were not as steep due to recent outages effecting these grades.
Total and Braskem both recently completed maintenance outages and should be restarting their copolymer lines promptly. P66 reportedly has a line down in Linden, NJ which should be complete in the coming weeks.
EIA propylene inventories were down from 3.9 to 3.76 million barrels. Refinery rates also decreased due to a couple unplanned production issues that should be short lived.
FHR’s PDH unit is up and running again. Dow’s unit remains down and is expected to restart in the next couple weeks.
We have not heard of any May nominations for PGP contract prices. Based on a spot value of $0.3075/lb, flat to slightly higher is expected.
RTi PP Outlook and Suggested Action Strategies
30 Days: Polypropylene prices will settle lower for April and could decline $0.01/lb to $0.02/lb in May. We expect a discounted spot market to continue into May. 60/90 Days: We expect generally stable prices during this time. Import volumes could drop into June due to current arbitrage spreads, but we expect the arbitrage to open back up in coming weeks.
In the PVC market, the explosion last week with more than 30 fatalities at the Mexichem VCM plant suggests that the plant will be out for much of the rest of the year. This will boost Q2 pricing as more PVC increases have been nominated and some domestic maintenance continues.
Rising export prices suggested a total domestic market increase of $0.05-$0.07/lb in total across March/April before the explosion. With lengthy repairs expected, we estimate $0.08-$0.10/lb across Mar/Apr/May/June as future increase nominations range from 6 cents in May to just 3 cents in June.
Implemented increases so far appear to range from $0.05-$0.07/lb across March April, below the nominated level of $0.08/lb.
VCM/PVC maintenance in Q2 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 as an issue to overseas cost to produce will remain a factor, but pushed to the background as the supply demand balance due to the Mexico outage takes center stage till Q3.
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, but PVC demand expectations remain improved in 2016.
Chlorine: Spot moved marginally higher once again this week as we approach the summer swimming pool demand season.
Ethylene: Moderate trading activity this week. Markets are settled after covering all the ethylene needs during turnarounds.
RTi PVC Outlook and Suggested Action Strategies
30 Days: The Mexico VCM outage is applying upward pressure on the market with additional increase nominations. Fight May increases with the lagged Shintech nomination in June when the market will have fully realized the impact of new capacity. Stay a month ahead in purchases since June is expected at best flat. 60/90 Days: We expect to enter calmer waters by June/July. 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.
In the PET market, feedstock April contracts settle higher, supporting the higher April PET price increase.
While spot PET prices have been mostly stable for most of March and April, recent prices have moved slightly higher. This is mainly in response to higher domestic contract settlements for feedstocks and PET price increases seen in Asia.
The WTI crude oil weekly average increased by roughly $2 per barrel from last week, with prices trending higher through the week and topping off near $46 per barrel.
The summer bottling season demand has been fairly strong, especially when considering its relatively early start. On the other hand, the carpet markets have been somewhat lackluster.
Paraxylene: April PX fully settled $0.02/lb higher from March, at $0.40/lb. With the rising gasoline prices heading in to the summer driving season, we could easily see increases in May and perhaps June.
PTA: April PTA settled higher in a way that does not align with previous formulas, expecting a $0.94/lb increase to $0.4068/lb. The increase above expectations could be the result of margin expansion, changes in energy costs, or some other undisclosed factor.
MEG: April MEG settled $0.04/lb higher. Tightened MEG supplies throughout April contributed to the increase, however we can expect this to reverse heading in to May as MEG plants are coming back online.
RTi PET Outlook and Suggested Action Strategies
30 Days: PX and PTA are still showing signs of further (although less dramatic) increases in May. MEG on the other hand has some potential for some downward movement as more facilities are coming back online after maintenance, which should relieve supply constraints and lower pricing. PET should respond with flat to marginally higher prices in May. 60/90 Days: Drivers for raw material cost increases should strengthen going into June and July, especially as seasonal demand reaches its peak for PET and upstream PX. Crude oil pricing is still a variable that is difficult to predict, and its movement will definitely help influence the PET price direction.
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