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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 30/05/2016 (16:16)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, the over supplied global polyethylene market may soon influence domestic pricing, despite rising oil prices.

Market Overview

China is not importing resin due to soft demand. Recent offers from Chinese traders to Latin America have surfaced at equivalent prices. Offers are expected to put downward pressure on Latin American export prices and will eventually impact North American export prices, leading to high inventories.

The impact of the LBI FM is minimal. Resin allocations have not been initiated. RTi clients have not reported any change in resin availability.

China and Asian resin prices declined this week due to oversupply and weak demand.

Global ethylene and polyethylene plant turnarounds are successfully coming to an end.

Expect a continued ‘buy as needed’ strategy in the prime/contract and secondary markets. Processor
inventories have returned to ‘normal’ levels.

Off grade buyers are seeking lower priced opportunities as suppliers attempt to increase off grade pricing.

Mexico’s Braskem-Idesa plant further delayed the start-up due to lack of ethane to make ethylene. RTi
sources report the new plant will be in a position to start supplying HDPE in mid-July and LDPE in August.

Feedstocks

Spot Ethylene: The healthy inventory levels continue to lead to very moderate trading activity. Cost to produce ethylene from ethane remains under $0.09/lb in NA.

Naphtha Prices remain unchanged near $420/mt. The cost to produce ethylene from naphtha is $0.31/lb.

RTi PE Outlook and Suggested Action Strategies

30 Days: Manage inventories and buy only as needed. Prices in June will not increase beyond the May level. 60/90 Days: Inventories will begin to improve as the globe turns away imported resin. The duration of the latest 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, two polypropylene producers announce $0.05/lb price decreases for June 1st.

Market Overview

Late last Friday ExxonMobil issued a Polypropylene Resin Price Action stating that effective June 1st, prices for certain homopolymer grades will decrease $0.05/lb. with all other grades decreasing by 0.03/lb. This was to be separate from any changes in propylene monomer. This week another major polypropylene producer was reported to be implementing a $0.05/lb decrease for all polypropylene resins, also effective for June 1st.

The rest of the producer community has not yet responded with anything official regarding the June decreases. In fact, we saw many producers taking a strong stance for flat May prices. Now, all producers will be in a position where they will be expected to respond to the Exxon move for June.

This all follows a March to May period where roughly $0.06/lb to $0.07/lb of margin was just removed from domestic PP prices due to the threat imported polypropylene where volumes are up about 120% so far in 2016.

We do think that the most or all of the $0.05/lb decrease announced for June will get implemented for most of the marketplace. Even when implemented, contract prices will still be at a premium to the spot market where prices are being heavily discounted to find demand.

Supply & Demand

Recent adjustments to the ACC data shows that PP inventories increased more than originally published. There has been a net gain of 263 million/lb over the past 6 months.

Days of Supply increased to 35.6 days with the adjustment.

These numbers are as of the beginning of May and do not include market activity throughout the month of May.

The ACC data also does not include import data. We do know that part of the inventory in the market place is imported material. This would only add to the numbers above.

RTi PP Outlook and Suggested Action Strategies

30 Days: With two announcements for calling for lower prices in June, we expect the rest of the market to follow and expect a range of lower prices. There are still excellent opportunities for buyers in the secondary markets. Where possible, take advantage of these. 60/90 Days: We expect monomer prices to be flat to lower during this time. We will also be watching for a reinvigorated import market due to recent declines in Global PP prices.

In the PVC market, price pressure from outages appearing overplayed and offset by weak downstream pricing power, expanded capacity and seasonal easing of global demand.

Market Overview

PVC market increases are expected to total $0.06-$0.08/lb across Mar/Apr/May/June, with $0.06 already in place and the likelihood of more from existing nominations losing momentum.

Demand and prices for exports are challenged by higher prices and seasonal demand declines overseas.

VCM/PVC maintenance recovery has seen some delays in May that does not help short term availability, but lower export pricing suggests availability is not as dire as some producers would project.

The threat of further price hikes and constrained availability has driven some additional domestic demand with inventory building that will start to come out of the market in June.

The supply/demand balance remains center stage till Q3 when feedstock costs are likely to move lower.

Supply & Demand

Supply: Output fell 14% in April due to maintenance and may recover more slowly than expected in May. Still, output is still nearly 6% higher for the first 4 months YOY (ACC).

Demand: Domestic demand is up 6% in first 4 months YOY (ACC) as overall demand is up 7% helped by higher exports,

Housing is improved in April, but still not at the levels hoped for.

Feedstocks

Chlorine: Spot pricing remains flat as volumes are expected to ease entering mid-year on reduced demand.

Spot Ethylene: The healthy inventory levels continue to lead to very moderate trading activity. Cost to produce ethylene from ethane remains under $0.09/lb in NA.

RTi PVC Outlook and Suggested Action Strategies

30 Days: May increase efforts will continued in June with increasing resistance from the buy side. The construction market turned in strong numbers for April, but exports will see seasonal easing as supplies improve, helping to blunt price increase arguments. Stay a month ahead in purchases since June is expected at best flat. 60/90 Days: We expect to enter calmer waters with the potential for pricing to ease by July/August as costs move lower. Focus suppliers on expanded capacity while maintaining an eye on export price progression and demand.

Forward PET raw material cost outlooks show signs of stability due to somewhat balanced market fundamentals and expectations for easing crude oil prices.

Market Overview

The peak of the summer bottling season is approaching, but as we have seen before, seasonal demand only has minor impacts on PET pricing when compared to changes in raw material costs.

Based on changes in raw material costs, we could expect a PET price rollover from April to May. However, with the initial 2 cent price increase nomination on the table, a 1 cent increase negotiation is more likely.

The varied global crude oil production issues seen last week (US closures; Canada wildfire; Nigeria pipeline outage; Libya political unrest) have put upward pressure on short term oil prices. Currently there are expectations for supply renewal from Libya by the end of the quarter and could ease crude oil pricing.

Feedstocks

Paraxylene: The May contract price fully settled up $0.005/lb, at $0.405/lb. Spot prices reacted more to changes in the Asian markets, despite weaker domestic demand and stronger supply availability.

PTA: The formula based PTA contract price for May settled about a third of a penny higher, to $0.416/lb. PTA markets have seemingly started to slow down as we near the end of Q2, with outlooks showing stability through July.

MEG: MEG prices tracked more closely with PTA, with markets somewhat slow due to decent demand and moderate supplies.

RTi PET Outlook and Suggested Action Strategies

30 Days: With the PET domestic feedstock contracts settled for May, the raw material costs shows little change from April. This would indicate a potential rollover from April, but with the 2 cent increase nomination on the table, it may be difficult to prevent any sort of increase. The 1 cent middle ground for negotiations could be reasonable. Provided that these outlooks continue, producers have little to no incentive for increases in June. 60/90 Days: If May sees any increase, then June should be stable. Crude oil prices should ease heading into July. Although the summer driving season will put upward pressure on PET feedstocks, PET seasonal demand should start to wane. Flat PET pricing would be the goal heading in to the start of Q3.
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