Weekly Market Drivers for the USA
July PE prime prices remain firm heading into the last week of July. The expectations of softer prices did not emerge. In fact, LBI has recently announced a $0.05/lb price increase on all PE for September 1, 2016.
Houston ports are reported busy as traders have taking positions on PE. The indication is that Asia demand for short term resin needs will be met by North American incremental supply.
Limited ethylene in Asia is expected to firm and open a potential export market to this region. Middle Eastern and Asian ethylene cracker maintenance will begin in August and continued through November.
The lack of a price increase letter from suppliers is one of the leading indicators of an expected down market.
Westlake restarted the LDPE plant two weeks ago. LDPE availability will begin to recover shortly.
According to Braskem-Idesa, their LDPE plant is finally running, but they won’t have material available to ship until September.
Spot Ethylene: The supply disruptions that supported an increase in price last week are not as pronounced as expected and led to some lower prices this week.
Naphtha Prices continue to be steady near $395/MT. Ethylene prices have remained firm due to an above average ethylene cracker turnaround season in Asia. Falling crude oil prices have sent Asian naphtha prices to a price level not seen since April.
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. Suppliers will always have an increase letter in place to keep prices from falling and to send a message to other suppliers. With a September increase letter out, we can expect August to be flat. 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, spot PGP up $0.02/lb on the week.
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.
At least two of the major industry indexes are reportedly going to show decreases for July.
The secondary market still has well-priced material available. It appeared there were pockets of tightness starting to develop, but by the end of the month there were blocks of cars getting moved at heavily discounted price points.
With the threat of higher PGP contract prices for August, polypropylene contract prices could see its first market wide increase since the 1st QTR.
Spot PGP traded at $0.335/lb this week, equal to the July contract price. We expect to see nominations for higher August contract prices. Based on current spot values, a $0.02/lb to $0.03/lb increase is viable.
The Dow PDH remains down. Dow did report this week that they expect to have their PDH back up in the first couple weeks of August. LBI metathesis is also reportedly down.
Rising gasoline inventories throughout the US is likely to lead to rate cuts at the refinery. We are also hearing of an early switch to winter blends for certain refiners.
Enterprise confirmed this week that propylene export volumes are up with their new export capabilities in the Houston area.
Propylene inventories reported by the EIA fell from 3.16 million/bbl to 2.89 million/bbl.
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. Good opportunities continue to exist in secondary markets. 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 production levels recovering in August. Ethylene spot gave up $0.01/lb this week on cracker restarts.
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. Buyers are contesting this with flat gaining traction based on restarts and limited feedstock pressure.
Construction demand is good, not as much growth as hoped for, but growth nevertheless with new housing starts up 7% YTD and an increasing proportion of more PVC intensive single family homes.
The supply/demand balance will remain center stage as export pricing continues to move higher on restricted supply, nearing the $0.35/lb mark. The situation in Turkey could reduce some global demand.
Supply & Demand
Supply: The Westlake restart will add to supply in August. Production fell back in June by 6% (ACC) with recovery expected in August. Inventories fell 12% to the lowest level in some years even though production is up 6% YTD.
Demand: Domestic and export demand fell by 4 and 2% respectively (ACC), but remained higher for H1 by 5 and 14%. Capacity added in H1 should help meet/exceed demand in H2.
Chlorine: Spot pricing was flat this week after coming off of the summer seasonal demand peak.
Ethylene: The supply disruptions that supported an increase in price last week are not as pronounced as expected, and led to some lower prices this week. International
RTi PVC Outlook and Suggested Action Strategies
30 Days: The Westlake outage has pushed export pricing above $0.34/lb. Implementation of the remainder of the June 3 cents in July is subject to industry pushback and a lack of sufficient feedstock pressure. 60/90 Days: We expect to enter calmer waters by Sept. as Westlake production is back with additional PVC capacity on-line and slower global growth. However, the potential for another penny or 2 attempt in August exists, and is expected to be at least partially undercut by a lack of demand strength.
July PET assessed flat to half a cent lower. Lower raw material costs and easing seasonal demand set to put downward pressure on PET prices heading to the end of Q3.
Low priced PET imports from Latin America and Asia continued to put downward pressure on domestic spot pricing this week. Current spot pricing is approximately 8% below a price peak in mid-June.
Imports from Brazil in particular have shown some remarkable growth through 2016 so far. USITC data shows that imports have risen by 640% from May 2015 to May 2016. The antidumping duties we have witnessed in Q4 2015 and Q1 2016 are to blame for these increases, as buyers shifted there imports away from affected countries to Brazil and parts of Asia.
WTI crude oil prices made a decent decline by the end of the week, touching close to $40/bbl due to ample supply availability. Refinery rates remain in the low 90%’s range.
Paraxylene: High gasoline stocks alleviated some of the cost pressure on upstream MX. In terms of PX supply, a recent restart in Singapore was offset by news of maintenance in another in the ME.
PTA: Current outlooks for PX/PTA are for steady declines heading in to September, mainly as a result of lower priced crude oil and decent supplies.
MEG: Spot and contracts are expected to move lower with crude oil, especially with recent crude oil prices coming close to $41 per barrel. International
RTi PET Outlook and Suggested Action Strategies
30 Days: Raw material costs and expected market forces lean towards flat to lower pricing for both August and September. Hold out on purchases (if possible) to acquire best prices as we head away from the peak pricing season. 60/90 Days: Recent sudden drops in crude oil pricing has had some impact on future expectations for crude oil and upstream PET feedstocks. If crude oil stays around the $40 per barrel mark or lower, we could see more PET price declines than was initially expected. There are no significant changes to the supply/demand market dynamic as of yet, so the only variable that has room to move is crude oil.
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