Weekly Market Drivers for the USA
A recent Westlake’s LDPE supply disruption’s impact on the domestic market is presenting LDPE supply concerns. The event is also expected to weaken the spot ethylene markets due to reduced PE production the next few weeks.
Oil prices retreated ~10% this week to near $46/bbl, as future oversupply concerns led the news market.
Global prices were back on the downward track of late May as oil prices lost the upward momentum.
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.
LDPE disruptions added additional tightness to the already tight LLDPE butene and HDPE blow molding resin. Availability for export remains marginal, keeping prices firm or up for LDPE exports.
Ethane: Ethane prices decreased $0.05/gal this week to near $0.20 after a short term run up. $0.20/gal ethane equates to $0.09/lb cash cost to produce ethylene. Slight 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 $0.255/lb. Cost to produce ethylene from ethane remains under $0.09/lb in NA.
Naphtha Prices moved up to catch up to the recent increases in oil near $435/mt. The cost to produce ethylene from naphtha is just above $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 or July will not increase beyond the May level. Expect a price increase letter in the improbable event that oil advances to $55/bbl. 60/90 Days: Inventories have started to improve as the globe turns away imported resin. The duration of the latest increase may not be long if trends continue without further 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 market hits summer season.
PDH outages by both Flint Hills and Dow along with some refinery issues have driven both RGP and spot PGP pricing up minimally. Flint Hill is operational now but Dow is still down and has been very quiet regarding a new start up time as well as the cause of the outage.
Propylene inventories reported by the EIA dropped from 3.59 million barrels to 3.35 million barrels. This is the second consecutive week we have seen this large a drop yet inventories are still in a healthy inventory position. RGP pricing has increased $0.025 this month and spot PGP has increased $0.005/lb based on the drop in inventory and the previously mentioned outages.
June PGP monomer remains unsettled. Sentiment in the industry is for a flat to plus $0.005 increase for the month.
ExxonMobil and Formosa have both communicated their intention to lower polypropylene prices up to $0.05/lb in June. At least one additional producer has indicated they will lower pricing for June but was not firm on whether the reduction would be $0.02/lb or $0.03/lb. Some reductions will be dependent on whether the processor has met contract volume requirements as well.
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.
Indications are that future orders for import resin are down currently because global PP resin pricing has not reacted to the lower NA spot pricing. It is expected that global pricing will be in line with NA pricing in the next 30-60 days.
Supply & Demand
Secondary market PP offers remain strong and are heavily discounted to contract pricing.
Suppliers continue to export smaller volumes of PP to bring their inventories in line.
Many processors are indicating business has dropped off a little from the previous few months demand.
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, price pressure from ethane relaxed due to lower oil, driving feedstock cost increase expectations lower as export pricing also declined.
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 some momentum on the feedstock side, as oil dragged ethane lower and ethylene fell with resolution of unplanned outages and added capacity.
The threat of further price hikes drove some additional domestic demand for inventory building that could translate into slowed demand leading into Q3, looking for lower pricing later in the quarter from ample supplies due to added capacity.
The supply/demand balance remains center stage till Q3 when resin and feedstock costs are likely to move lower once unplanned outages are resolved. A threat to that evolution could be seasonal export demand recovery, but sluggish global GDP growth would limit that scenario.
Supply & Demand
Supply: Production hit its highest level since January, but still left a deficit, causing an inventory reduction of nearly 70MM lbs. That shortfall should see recovery in June/July as maintenance has ended.
Demand: Exports fell in May (ACC) by 3% while still 19% over 2015 through May. Domestic demand was up 4% MOM and up 6% YTD.
Chlorine: Chlorine prices have likely reached their summer seasonal high, with spot unchanged from last week.
Ethylene: The healthy inventory levels continue to lead to very moderate trading activity near $0.255/lb. Cost to produce ethylene from ethane remains under $0.09/lb in NA.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Price increase efforts are losing some feedstock momentum offset by lower inventories. Lower export pricing and use of processor inventories are expected to flatten the market. 60/90 Days: We expect to enter calmer waters with the potential for pricing to ease by July/August as costs move lower and supplies improve from the end of outages. Focus suppliers on expanded capacity while maintaining an eye on export price progression and demand.
In the PET market, the Summer driving season weighs in on PX pricing; Could push June PET pricing up to $0.01/lb higher.
Spot PET assessments reacted quickly to the higher PX pricing, gaining ~3% from last week. If the PX price increase holds for the rest of June, we could see a 2 cent increase in PX contracts.
With MEG likely to settle ~1 cent lower and PTA up $0.0134/lb higher (formula based off the PX settlement), PET costs are estimated just under $0.01/lb higher for the month.
The summer bottling season is still strong (although easing), which will help support any increase nominations by producers.
Expectations for an oversupply situation in the near future caused WTI crude oil prices to retreat away from the $50 per barrel mark, currently down to $46.
Paraxylene: Upstream toluene and mixed xylenes have been experiencing some supply tightness from the summer driving season, due to more derivatives being preferred to be used in the gasoline mix rather than in PX production.
PTA: There is a possibility that higher energy costs could weigh in on the formula based contract price for June.
MEG: Unchanged market dynamics kept spot prices mostly stable this week. June contracts have been assessed down 1-2 cents from May.
RTi PET Outlook and Suggested Action Strategies
30 Days: There are some mixed expectations over the outcome of the PX settlement, especially as we are at the height of the summer driving season, which supports upstream toluene, but also experiencing a bearish outlook on crude oil. If PX settles as high as 2 cents above May, and MEG settles ~1 cent lower, we could see a PET increase nomination of around 1 cent. PX settlements less than 2 cents would also lower the expected PET price. Buy as needed, for the expected increases in the short term are minimal. 60/90 Days: The summer bottling season should be all but absent by this time, and with crude oil outlooks currently bearish, PET should see some price easing. However, PX and PTA still have a lot of factors that could keep pushing PET raw material costs higher, and PET pricing would have incentives for increases.
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