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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 13/06/2016 (15:08)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, the first week of June sets up the global resin challenge: Oil Prices vs. Over-Supply.

Market Overview

Continued higher oil prices may prompt NA suppliers to announce new PE price increases.
Global prices halted their downward trend as oil prices reached and exceeded $51 per barrel for the first time since July 15, 2015.

This week’s boost in oil prices can be attributed partially to unrest in Nigeria, where militants have attacked oil facilities, causing supply disruptions, according to JBC Energy. Several analysts recently projected that oil would retreat to $45 per barrel by the end of 2016.

Global and North American prices remain within the $0.10/lb delta necessary to balance resin markets. Any further global price decrease or NA price increase would change the imported goods activity into NA.

Recent offers from Chinese traders to Latin America continue due to high supply in China and SEA.
LLDPE butene and HDPE blow molding resin availability for export remains marginal, keeping prices firm.

A ‘buy as needed’ strategy in the prime/contract and secondary markets. Processor inventories have returned to ‘normal’ levels with expectations of price decreases.

Feedstocks

Ethane: Prices have increased a few cents to $0.25/gal due to propane and butane price increases, putting pressure on ethane prices; the advantaged feedstock produced from the three is ethylene. Ethane prices are expected to retreat as these other feedstocks have decreased this week. $0.20/gal ethane equates to $0.09/lb cash cost to produce ethylene. The ethane increases will not be a cost push for PE.

Spot Ethylene: The healthy inventory levels continue to lead to very moderate trading activity near $0.25/lb. 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: Continue with last week’s RTi’s strategy: Manage inventories and buy only as needed. Prices in June will not increase beyond the May level. Expect a price increase letter if oil advances to $55 per barrel. 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 then 90 days without oil prices remaining above the $50 level.

In the PP market, NA PP Days of Supply hit three-year high at 36.1 days.

Market Overview

We have not heard of an official nomination for June PGP. Buyers were negotiating for down $0.005/lb, and sellers were pushing for up $0.005/lb for the June contract. Yesterday spot PGP traded at $0.305/lb which supports the seller’s position. Flat to up a $0.005/lb is expected.

Propylene inventories reported by the EIA were down from 3.86 million to 3.59 million barrels. Propane and butane have regained their cost advantage over ethane as a cracker feed. This supports propylene supply from the cracker. On the flip side, Dow’s PDH remains down and reports indicate difficulty in getting the unit restarted. FHR’s PDH is down but is expected to restart this weekend.

ExxonMobil and Formosa have both communicated their intention to lower polypropylene prices up to $0.05/lb in June. While the rest of supply base has not issued an official statement, many have been offering lower prices in June as well. The size of the discount varies by customer and grade, and largely depends on where the price was to begin with.

Spot prices in the secondary market remain heavily discounted, even when considering the lower contract prices for June. We are also seeing polypropylene being exported to help clear the overhang.
Recently released customs data showed another strong month for PP imports for April. The US is averaging about 3.27 million pounds per day of imports which represents 6.5% of total supply. Imports are up 126% in 2016.

Supply & Demand

NA PP production for May was strong with an operating rate of 93.7%

Inventories grew by 36 million pounds and are up almost 200 million pounds this year.

Days of Supply are at a 3-year high of 36.1 days.

Polypropylene demand has leveled off in 2016 following a 5.3% growth rate in 2015. After accounting for import volumes and the inventory build, real demand for 2016 is down roughly 1.0%.

RTi PP Outlook and Suggested Action Strategies

30 Days: PP prices are expected to be lower in June with monomer prices flat to up $0.005/lb. 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 on chlorine and ethane is driving feedstock costs higher in June even as export pricing is flat due to seasonal factors. Axiall and Westlake will merge.

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 regaining some momentum on the feedstock side due to outages and strong seasonal chlorine/caustic demand.

Export pricing is static from holiday driven demand reductions and the end of the maintenance season.

VCM/PVC maintenance recovery domestically continuing in June.

The threat of further price hikes and constrained availability had driven some additional domestic demand with inventory building, looking for lower pricing later in Q3 from ample supplies and sluggish growth.

The supply/demand balance remains center stage till Q3 when resin and feedstock costs are likely to move lower once unplanned outages are resolved.

Supply & Demand

Supply: Supplies are improving as maintenance ends. One less competitor as Axiall and Westlake have agreed to a merger resulting in a company with more than 25% of NA capacity, second only to Shintech with over 30%.

Demand: Global growth estimated by the World Bank has been cut from 2.9% (2015’s level) to 2.4% as uncertainty led by Brazil and Russia led to a less optimistic outlook. The US is expected near 2%. Indicates a competitive market for exports as global capacity looks for market share.

Feedstocks

Chlorine: Spot prices continued to climb this week as we approach the height of the summer demand season.

Ethylene: Supply is pegged as strong. Spot prices have been coming off systematically since the end of March. The Ineos cracker has restarted, which will put more material into the supply stream and potentially push prices lower. Contract prices for May declined by $0.005/lb (at $0.30/lb).

RTi PVC Outlook and Suggested Action Strategies

30 Days: June will see a strengthening of increase efforts with feedstock pressure. Flat 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 to modestly up. 60/90 Days: We expect to enter calmer waters with the potential for pricing to ease by July/August as costs move lower once outages are resolved and we start to see seasonal easing of demand. Focus suppliers on expanded capacity while maintaining an eye on export price progression and demand.

In the PET market, this week’s PET spot pricing and forward outlook show signs of stability.

Market Overview

Spot prices this week were just as stable as the raw material costs, which indicates unchanged market dynamics.

The summer bottling season, although slowing slightly, is still strong. PET inventory levels have been deemed healthy due to the higher levels of buying activity.

WTI crude oil prices have been bouncing around the $50 per barrel mark for several weeks now. Some have speculated that OPEC has lost its influence on CO prices, and that it is now being driven by market fundamentals. There were meetings held this week by OPEC on how to restore its position.

Feedstocks

Paraxylene: The summer driving season has put upward pressure on upstream Mixed Xylene prices, enough so to put the June contract price expectations for paraxylene up about a penny from May.

PTA: Current expectations for the June PX settlement would put formula based PTA up by ~$0.0067/lb.

MEG: Crude oil reaching above $50 per barrel as well as ethane seeing some noticeable gains this week have created a somewhat bullish short term outlook on upstream ethylene costs.

RTi PET Outlook and Suggested Action Strategies

30 Days: Most expectations are leaning towards a rollover for PET from May to June/July. The peak summer bottling demand season should be dwindling by this time, but it typically does not hold much sway over PET pricing. Instead, we can see the raw material cost outlooks showing stability, and with supply/demand having minimal impact during this time, a rollover is most likely at this point in time. 60/90 Days: July and August outlooks currently show the same level of price stability seen in June. The Asian markets should be slowed due to the monsoon season, and the summer driving season should be in the process of concluding during that time. Crude oil is still a difficult variable to predict, however, and could influence raw material costs in either direction.
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