Weekly Market Drivers for the USA
May prices stayed flat after two consecutive months of price increases; March $0.05/lb and April $0.04/lb.
China is re-exporting resin due to soft demand that is expected to continue through August/September.
Chinese traders have reduced prices to Latin America in an effort to move excess product to the region.
June offers to Europe and Asia from the Middle East are lower than May prices.
LLDPE and HDPE blow molding resins in the secondary market and export remain minimal. This is expected to improve over the next 45 days.
A ‘buy as needed’ strategy in the prime/contract and secondary market continues. Processor inventories have returned to ‘normal’ levels.
The impact of the LBI FM is minimal. Resin allocations have not been initiated. RTi clients have not reported any change in resin availability.
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. May ethylene contract settled down $0.005/lb, at $0.30/lb.
Naphtha: Prices decline due to soft demand in Asia leading to decreases in the spot ethylene price. Naphtha prices were down $10/mt from last week. The cost to produce ethylene from naphtha is $0.30/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. Consider July shipments versus June shipments when possible. 60/90 Days: Inventories will begin to improve as the globe turns away imported resin. The duration of the April $0.04/lb 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 then 60 days.
In the PP market, FHR’s PDH goes down for an expected 1-2 weeks.
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.
Formosa also has plans to decrease prices by $0.05/lb for all polypropylene resins, also effective for June 1st. Some of the other producers have indicated they plan to lower PP prices for June but have not fully committed to the amount.
Otherwise, this first week of June has been fairly quiet. The few numbers we have seen in the secondary market are consistent with where they left off in May.
Polypropylene inventories remain elevated at some of the highest levels the market has seen in years.
Overall levels are likely higher if import pounds are included. We continue to hear of a slowdown in new import orders. This could impact the market once current inventory excesses clear the market.
We have not heard of any official PGP June contract nominations but hear that a rollover is getting discussed.
Spot PGP traded at $0.305/lb this week. This is consistent with recent valuations and supports a June rollover for contract pricing.
FHR’s PDH unit went down prior to a 7-day TAR. It is expected to be down for 1-2 weeks. Dow’s PDH unit remains down and has some market watchers concerned as to the extent of their issues.
Metathesis economics are favorable. Propane and butane have both weakened, making them competitive again with ethane at the steam cracker. The amount of propane and butane in the cracker feedslate has a big impact on propylene supply.
RTi PP Outlook and Suggested Action Strategies
30 Days: PP prices are expected to be lower in June with monomer prices rolling flat or very close to flat. Spot pounds still carry a sizable discount to contract prices and offer a good opportunity for buyers in the near term. 60/90 Days: We expect prices to be generally flat during this time. A key factor will be whether the arbitrage for imported PP into the US opens back up.
In the PVC market, upward price pressure from outages is offset to flat due to increasing production, weak downstream pricing power, and easing of export demand/prices.
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 continuing to lose momentum as export pricing eases lower.
Export pricing is helped lower by seasonal demand reductions and the end of the maintenance season.
VCM/PVC maintenance recovery domestically saw some delays in May that will see substantial improvement in June.
The threat of further price hikes and constrained availability had driven some additional domestic demand with inventory building that will start to come out of the market in June, looking for lower pricing in Q3.
The supply/demand balance remains center stage till Q3 when resin and feedstock costs are likely to move lower.
Supply & Demand
Supply: Output is expected to improve for the remainder of Q2 after falling 14% in April due to maintenance but 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, Construction spending from the Commerce Dept. fell below February levels in April after a March increase, discouraging GDP growth expectations for Q2.
Chlorine: Spot pricing is currently ~20% higher than the 2016 low in March due to increased summer trading activity.
Ethylene: The healthy inventory levels continue to lead to very moderate trading activity. May ethylene contract settled down $0.005/lb, at $0.30/lb.
RTi PVC Outlook and Suggested Action Strategies
30 Days: May increase efforts will continue in June with increasing resistance. Lower export pricing, improving supplies, and challenges in construction market spending will all help 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.
In the PET market, raw material cost outlook unchanged. May contracts expected to be flat to lower; still awaiting final settlements.
Potential imports from Asia have influenced domestic spot PET prices lower this week, with some offers heard at a ~6% discount to the high in May.
Although PET contracts for May have not fully settled, current market conditions and marginally lower raw material costs should prevent any increase from coming into fruition. The high demand season for bottle grade PET resin has likely reached its peak, and is starting to wane slightly.
Oil volatility continues as US inventories dip, but remain well above the 5 year average. Weekly WTI average pricing has moved higher for 8 consecutive weeks as the market looks for an excuse to break through and hold above $50. The OPEC meeting this week failed to deliver that excuse, but lower US oil inventories may.
Paraxylene: Upstream from PX, mixed xylenes (MX) started to react to increases in gasoline values. Spot PX pricing in the US started to move lower, however, following the changes in Asian PX prices. With MX on the rise and PX starting to fall, US producer margins are starting to tighten.
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: Limited trading activity alongside ample supplies kept MEG spot pricing at relatively lower levels this week. Outlooks are showing stability for MEG pricing heading into July.
RTi PET Outlook and Suggested Action Strategies
30 Days: Raw material cost outlooks show stability through June. At the moment, there is little incentive for any sort of price increase for PET; demand is waning and raw materials are stable. A rollover for June is likely, however the window for price decreases may open if market conditions continue. 60/90 Days: The next few months show only signs of stability. Crude Oil, although currently priced at around $50 per barrel, is the main variable that is difficult to predict, given the lower inventory levels and the decisions made at OPEC.
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