Weekly Market Drivers for the USA
China and Asian resin prices were flat this week as buying has stalled in this region due to oversupply and weak demand. Poor economic news may also contribute to further weak demand.
North American export opportunities to China have ceased.
April inventory data available next week is expected to be an inventory gain.
Global ethylene and polyethylene plant turnarounds are successfully coming to an end.
Braskem has publicly notified Mexico and Latin American buyers to expect spec HDPE resin in June.
April secondary market activity was the lowest of 2016. There was no buying progress noted in the first week of May. Prices are up an average of $0.04/lb from late February and March.
Spot Ethylene: Inventory levels are higher than average, leading to very 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.
Naphtha prices exceeded $400/mt for the first time this year. The cost to produce ethylene from naphtha is $0.31/lb. The spot ethylene price outside the North American market is selling in the near $0.53/lb.
RTi PE Outlook and Suggested Action Strategies
30 Days: Manage inventories and buy only as needed. Follow the three main drivers from the heading to determine the strength of the current price level after the March/April $0.09/lbs cumulative increases. 60/90 Days: With the $0.04/lbs 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 should not last longer than then 90 days.
In the PP market, May PGP nominated higher by $0.005/lb.
Spot PGP values are around $0.305/lb to $0.31/lb. That would support a $0.005/lb increase for May contract pricing, however, we could easily see May contract PGP prices rolling flat.
It is confirmed that Dow’s PDH unit is up and running to full rates. Refineries are past TAR season and should continue to run well into summer. Propylene supply looks good into the summer timeframe. This should lead to flat to lower prices.
Recent polypropylene outages have all cleared. The industry should be capable of running at full rates, but current supply/demand dynamics suggest producers might be discussing the need to cut rates.
The spot PP market continues to discount heavily. We are now seeing more copolymers become available with price points similar to homopolymers.
YTD polypropylene imports are up 120% from 2015 averages.
Including imports, NA polypropylene demand is growing at a 2.0% rate.
Not including Mexico & Canada, PP imports into the US were close to 120 million pounds in March.
RTi PP Outlook and Suggested Action Strategies
30 Days: PGP prices will settled close to flat for May. In polypropylene, we continue to see prices being pressured lower and expect that further margin will be removed from US domestic prices. 60/90 Days: We expect PP prices will be flat to down during this time.
In the PVC market, the April explosion of Mexichem VCM plant suggests that the plant will be out for much of the rest of the year. This helped extend increases in export pricing that will in turn help support further PVC nominations.
Export pricing continued steady upward movement without a notable surge from the outage. Forecast is for a total domestic PVC market increase of $0.08-$0.10/lb across Mar/Apr/May/June based on a range of increase nominations from 6 cents in May to 3 cents as late as 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. Any difference will likely be made up in May.
VCM/PVC maintenance in May does not help, but the Shintech capacity expansion will help soften the blow.
The threat of further price hikes will drive domestic demand higher with inventory building on top of seasonal demand increases to the extent that inventory is provided by the producers.
Oil and a slight increase in ethylene contract for April are factors, but pushed to the background as the supply demand balance due to the Mexico outage takes center stage until 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 higher.
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 prices have continued to inch forward since the start of April as we head into the summer demand season.
Ethylene: Inventory levels are higher than average, leading to very 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.
RTi PVC Outlook and Suggested Action Strategies
30 Days: The Mexico VCM outage is applying steady pressure on the market with May/June increase nominations. May increases will likely be delayed to June to sync up with the Shintech 3 cent nomination as the market catches up from previous nominations. The strength of the construction market will define the degree of success 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, increase nominations of 2 cents for May were heard from three producers, citing higher raw material costs.
PTA and PX contracts are expected to be as much as $0.01/lb higher for May, which could support some of the May PET increase nominations. The other factor to consider is the MEG price, which could move $0.01/lb lower, putting May PET at flat to 1 cent higher.
The WTI crude oil prices have been mostly stable this week, staying just below $45 per barrel for most of the week. Devaluation of the US dollar coupled with reduced NA oil output and increased demand from China had prompted prices to jump up ~25% since early April.
The combined summer bottling and summer driving seasons have put upward pressure on PET pricing and raw material costs, respectively.
Paraxylene: Upstream from PX, mixed xylenes prices saw a notable increase this week as an outage tightened supplies amidst strong seasonal demand.
PTA: The higher than usual April settlement (above the usual formula based price) was quoted to be the result of higher energy costs, not necessarily increased margins.
MEG: Rising crude oil prices did not have much of an effect on MEG pricing in China, with market participants having a somewhat bearish outlook on the market, which contributes to the down 1 cent expectation for May MEG. However, this is still subject to change.
RTi PET Outlook and Suggested Action Strategies
30 Days: The general consensus leans towards PX and PTA experiencing increases for May as a result of crude oil near $45 per barrel and the summer driving season increasing demand for MX to be used in gasoline. MEG is still up for debate, and its direction could move the May PET pricing from up 2 cents to perhaps flat. 60/90 Days: Raw material outlooks for June and July show little change. After most of the feedstock increases (or decreases) go through, it is expected to remain stable for the next few months. Changes in the Asian markets and crude oil prices will still have enough variability to prevent any assumption from being concrete as of yet.
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