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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 25/07/2016 (17:52)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, spot ethylene prices increased 20% to $0.30/lb since last week due to several Louisiana pipeline disruptions and the unplanned extension of the LBI ethylene turn around. Cost to produce ethylene from ethane remains near $0.10/lb. Spot ethylene represents less than 10% of the total ethylene market.

Market Overview

Despite the recent decline in inventory, HDPE and LLDPE off grade prices fell this week. The delta below prime increase $0.01-$0.02/lb and the delta is now more than $0.10/lb for some grades.
Westlake restarted the LDPE plant this week. LDPE availability will begin to recover shortly.

HDPE resin offers for injection and blow molding have not been limited. LLDPE is reported tight by brokers, however, RTi clients have been able to secure needs fairly easy.

The expectation of Braskem prime grade HDPE and LDPE resin is in July and August does not appear to be a reality as delays continue.

Middle Eastern and Asian ethylene cracker maintenance will begin in August and continued through November. Limited ethylene is expected to firm Asian and European prices.

A recent ChemOrbis report listed South Korea, Saudi Arabia, and Iran as the top three importers into China. United States is listed as 8th, approximately only 10% of the top three’s combined imported volume.

Feedstocks

Spot Ethylene: Several supply disruptions led to a $0.05/lb increase in ethylene this week. RTi sources are expecting this to be a short term rally that is not demand driven.

Naphtha Prices were stabilized this week near $395/mt, an increase of only $5/mt. Ethylene prices have remained firm due to an above average ethylene cracker turnaround season in Asia.

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 July or August will not increase. It is unlikely July prices will be reduced. 60/90 Days: Same as last week: The duration of the April $0.04/lb could last into the fall as the global markets firm up and North American inventories remain lower than average. Previous RTi prices expectations that resin could fall as much as $0.07/lb in Q3 may be more of a challenge than expected.

In the PP market, July contract PGP settles up by $0.005/lb to $0.335/lb.

Market Overview

Contract polypropylene prices for July are moving in both directions. Price points that saw the full decrease in June are seeing their July price up $0.005/lb with monomer. Price points that did not see the full decrease are seeing lower July prices by varying amounts.

The bulk of margin reductions have likely been implemented by the end of July.

The secondary market is still at a heavy discount to the contract market, but it appears to have bottomed. For certain grades of material, spot prices have seen slightly higher prices.

We are seeing some well-priced deals get done this month, but overall activity has slowed. Propylene
Dow PDH remains down due to mechanical issues. No timeline has been given for the restart, but the expectation is that it will be down for a minimum of another two weeks.

LBI metathesis unit is also down. Ethylene prices ran up to $0.31/lb. They have since come down to $0.29/lb, but the spread to propylene is quite small, offering little incentive. In addition, LBI has delayed their cracker restart which is directing their ethylene supply to other derivatives other than propylene.
Rising gasoline inventories throughout the US is likely to lead to rate cuts at the refinery. This would hurt propylene supplies of RGP.

If that were not enough, we are hearing Enterprise is exporting some propylene as a test run of their new export system.

Propylene inventories reported by the EIA fell from 3.24 million/bbl to 3.16 million/bbl.

Spot PGP was higher this week which led to the $0.005/lb increase in contract prices. Late this week, spot PGP was seen bid at $0.315/lb which means its real value is likely $0.32/lb or slightly higher.

Bottom line, there is reason to be bullish on propylene. We will have to watch the market play out, but there is potential for higher prices in the coming months.

Spot PGP moved slightly higher on the news with PGP valued at roughly $0.3075/lb.

RTi PP Outlook and Suggested Action Strategies

30 Days: PP prices for July will range from up $0.005/lb. to down $0.03/lb for most buyers. We do expect that industry indexes will also be showing a downward move pick up the balance from June. 60/90 Days: Supply issues in the propylene market give concern in the near term. Higher propylene prices would lead to higher polypropylene prices in the coming months.

In the PVC market, Westlake FM in place, but plant is in restart with production levels recovering in August. Ethylene spot prices are averaging up $0.03/lb this week on delays in cracker restarts.

Market Overview

June pricing is seen as a partial implementation of the nominated $0.03/lb with the remainder expected in July based on the outage at Westlake.

The IMF has trimmed global GDP growth by 0.1% for 2016 & 2017 to 3.1% and 3.4% respectively reflecting Brexit impact.

The supply/demand balance will remain center stage as export pricing continues to move higher on restricted supply and improving offshore demand. The situation in Turkey could reduce some global demand.

Supply & Demand

Supply: The Westlake restart should help add to supply in August. Production fell back in June by 6% (ACC) with recovery not expected till August. Still up 6% YTD.

Demand: Housing starts showed strength in June, rising nearly 5% to almost an annual pace of 1.2MM units. Builder sentiment was also higher in June.

Feedstocks

Chlorine: Spot prices continued to slip this week as we further exit the peak summer demand season.

Ethylene: Several supply disruptions led to a $0.05/lb increase in ethylene this week. RTi sources are expecting this to be a short term rally that is not demand driven.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Price increase efforts have gained strength from the Westlake FM with export pricing above $0.34/lb. Expect implementation of the remainder of the June 3 cents in July. 60/90 Days: We expect to enter calmer waters by Sep as Westlake production recovers with additional PVC capacity on-line and slower global growth. However, the potential for another penny or 2 in August exists, leading to a recommendation to buy ahead in July.

In the PET market, stable to lower raw material costs alongside competitively priced imports mitigate effects of higher demand, keeping domestic PET prices flat.

Market Overview

This week we have seen a number of low priced PET imports from Latin America and Asia that put downward pressure on domestic spot pricing. Contract PET for July is now expected to be anywhere from flat to $0.01/lb lower.

The summer bottling season could spill into the remainder of Q3, steadily easing into August (at the latest). The polyester carpet sector seems to have fully developed, with demand showing nominal levels of growth this past month.

WTI crude oil prices remained mostly unchanged this week, with average pricing sitting around $45 per barrel. Refinery rates moved about 1% higher from the previous week, reaching a 2016 high of 93.2%.

Feedstocks

Paraxylene: Upstream MX is mostly stable this week. A potential early recovery for a PX facility in Singapore as well as crude oil staying below $50 per barrel have created some bearish expectations for PX in the short term.

PTA: The July contract price fully settled at $0.42/lb, which is marginally higher (less than 1%) than the estimated formula based contract price at $0.4193/lb. This is more likened to approaching a rounder number rather than additional margin expansion.

MEG: Although current supplies are decent, LBI, Huntsman, and Nan Ya Plastics will have MEG facilities undergoing maintenance within the next few weeks, most of which will last around a month.

RTi PET Outlook and Suggested Action Strategies

30 Days: Raw material costs and expected market forces lean towards flat to lower pricing for both July and August. If contracts rollover for July, then there is plenty of drivers for decreases in August. 60/90 Days: (Same as last week): The second half of the year historically has some levels of PET price declines. Couple that with the expectation for crude oil staying around $45 per barrel (by some analysts) for the remainder of the year, we could see pricing at or below current levels heading forward. Keep an eye on both the Asian markets and crude oil to determine the PET price direction.
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