Weekly Market Drivers for the USA
The ACC preliminary inventory data coincided to what RTi had been seeing regarding soft NA demand and exports throughout the month of April. Both demand (-6%) and exports (-2%) were down, generally this would support an inventory gain. However, there was a significant draw of 186 million pounds in the inventory position because producers reduced operating rates by 8% (down to 85%), thus effectively controlling the supply.
China and Asian resin prices were flat for a second consecutive week as buying has stalled in this region due to oversupply and weak demand. Poor economic news may also contribute to further weak demand.
Global ethylene and polyethylene plant turnarounds are successfully coming to an end.
Mexico’s distributors await the release of the Braskem LDPE and HDPE resin; the first substantial impact on North American export business.
Secondary market buying continued a lackluster pace. Buyers are seeking lower priced opportunities as suppliers attempt to increase off grade pricing.
Spot Ethylene: The healthy inventory levels continue to lead to very moderate trading activity this week. Traders cautiously watch PE production rates. Lower rates could considerable weaken the spot ethylene market. Cost to produce ethylene from ethane remains under $0.09/lb in NA.
Naphtha Prices stayed $400/mt for the second week in a row. 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 $0.51/lb, down $0.02/lb from the previous week.
RTi PE Outlook and Suggested Action Strategies
30 Days: Manage inventories and buy only as needed. Prices in May and June will not increase beyond the April level. 60/90 Days: Inventory and export data do not support the most recent price increase. The duration of this increase may not be long if trends continue without disruptions. Expect suppliers to aggressively maintain every price increase achieved. The duration of the April $0.04/lb should not last longer than 90 days.
In the PP market, spot Polypropylene prices getting hammered.
Availability of polypropylene material in the secondary markets is keeping pressure on prices. Spot prices continued to fall for many grades of material. Discounts to contract prices can be $0.10/lb and more.
Contract polypropylene prices for the month of May are still being negotiated. There appears to be some commitment from certain sellers that prices will come down, but not likely to spot levels. Industry margins, however, will take another hit.
Imported polypropylene volumes in March came in around 120 million pounds. There continues to be a strong supply of imports into the US. We expect similar to higher numbers for April and May. We expect to see volumes drop off into June.
Spot PGP values are around $0.305/lb. No word on a contract settlement for May, but flat to up $0.005/lb is expected.
PP inventories have a net build of 208 million pounds over the past six months.
Days of Supply increased to 34.4 days heading into May.
YTD Industry Operating Rates are averaging 92.5%.
Including the increase in imports, domestic PP demand is growing at roughly 2.75%.
RTi PP Outlook and Suggested Action Strategies
30 Days: PGP prices will settle 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 pricing risk factor of outages will see offset by op rate recovery in May/June along with new capacity and a limit to export price escalation.
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.
Demand for export are challenged by higher prices, upcoming holidays and seasonal declines overseas.
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 availability suggests improvement in operating rates.
The threat of further price hikes will drive domestic demand higher with inventory building on top of domestic seasonal demand increases.
The supply/demand balance is center stage till Q3 when costs are likely to move lower.
Supply & Demand
Supply: Even as output fell 14% in April due to maintenance, output is still nearly 6% higher for the first 4 months YOY (ACC). Demand was steady MOM. Operating rates are expected to recover May into June as feedstocks also improve. Axiall Q1 results suffered from Westlake takeover attempt.
Demand: Domestic demand is up 6% in first 4 months YOY (ACC) as overall demand is up 7% helped by higher exports.
Chlorine: Pricing was flat this week after absorbing a decent amount of increases to account for seasonal demand last month.
Ethylene: The healthy inventory levels continue to lead to very moderate trading activity this week. Traders cautiously watch PE production rates. Lower rates could considerably weaken the spot ethylene market. Cost to produce ethylene from ethane remains under $0.09/lb in NA.
RTi PVC Outlook and Suggested Action Strategies
30 Days: May increase nominations will likely be delayed to June to sync up with the Shintech 3 cent nomination as the market catches up in May 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 as costs should move lower. 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, MEG assessed lower and PX assessed higher; PET raw material costs point to flat or 1 cent higher, while producers announce 2 cents higher.
Spot PET pricing has been on the rise, mostly responding to higher seasonal demand, crude oil near $45 per barrel, and expectations for PX and PTA price increases for May. Softening MEG could create some doubt in the 2 cent PET contract increase nominations.
The weekly average WTI crude oil price remained around the $45 per barrel mark, with end of the week pricing moving upwards towards $47. Saudi Oil experienced a change in minister last week, which has caused expectations of a retreat from the crude oil production freeze that was discussed for the last month.
The combined summer bottling and summer driving seasons continue to put upward pressure on PET pricing and raw material costs, respectively.
Paraxylene: Upstream from PX, mixed xylenes prices eased as some of the outages from last week recovered. However, the summer driving season should push MX pricing higher due to restricted supplies as gasoline blending is preferred over PX production.
PTA: The expected 1 cent increase in PX should put formula based PTA at $0.4194/lb for May, which includes a previous increase in formula costs to incorporate higher energy costs.
MEG: The economy in Asia has seen some improvements, which has given MEG traders a bearish outlook on pricing moving forward. US supplies have been improving after a number of plants returned after outages. Both the improved Asian economy and better supply availability should keep MEG pricing flat to lower through the month.
RTi PET Outlook and Suggested Action Strategies
30 Days: Raw material cost estimates for May show barely any increase, not enough to warrant a 2 cent increase in PET. Potential decreases in MEG could easily balance out increases in PX. Expect producers to push for May increase, but negotiating towards a more comfortable 1 cent increase may be possible. 60/90 Days: Outlooks show only modest raw material cost increases heading in to Q3 2016. Crude oil prices are still the more variable of the upstream costs, but with Saudi Oil’s new minister, we could see an end to the oil production freeze and see oil volumes rise and prices ease.
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