Weekly Market Drivers for the USA
Three of the last four months reported inventory gains with slightly higher than average exports.
Off grade prices increased as much as $0.03/lb this week as buyers cover needs ahead of the September price increase attempt.
Suppliers announced a $0.05/lb price increase for September.
Sources report the Exxon limited supply of HDPE from Baton Rouge, LA due to a pipeline disruption could last 30 days. HDPE blow molding and HMW resins are supplied from this plant.
Despite lower naphtha pricing Asian prices remain firm due to Middle Eastern and Asian ethylene cracker maintenance through November.
Export markets continued to be active. Some LDPE and LLDPE resin availability remains tight.
Braskem released Q2 operating production rates near 32%. September deliveries of LDPE are expected.
Spot Ethylene: Disruptions continue to support high spot ethylene prices above $0.30/lb. Ethane prices declined several cents this week as oil and natural gas prices remained lower. Spot ethylene is less than 10% of the market and has no impact on PE pricing.
Naphtha Prices have fallen over $50/mt in the last four weeks to near $355/mt. Asian ethylene prices remain 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 new resin strategy due to the new price increase announcements.
Prices in September will not be lower than August. The improved inventory could challenge the price increase attempt in September. Consider late August shipment versus early September shipments. Prices in August will not decrease. 60/90 Days: The price increase announcement changed the market discussion. Price could remain at or above the August level through October despite inventory gains. Suppliers will desperately fight any price concessions.
In the PP market, producers looking for a $0.04/lb PP price increase for September.
Several polypropylene producers have issued a $0.04/lb price increase for September 1st. At least one of the announcements states the increase is in addition to any change in PGP prices from August to September. Other announcements make no reference to monomer prices.
While there were still well priced offers in the secondary markets, it was also clear that prices were firming up for certain grades and availability was limited.
A new PGP nomination was seen this past week calling for a $0.04/lb increase in August.
Spot PGP traded at $0.3575/lb and was followed with bids at $0.36/lb.
Dow did restart their PDH unit this week but questions remain as to whether they are running good product at rates.
Motiva was forced to shut down and evacuate their Convent, LA refinery due to a fire.
Propylene inventories reported by the EIA were at their lowest level since late 2014 with levels reported at 2.605 million/bbl.
Domestic demand was off by 10% from June and 6% below the 2016 average.
Export demand was significantly higher in July with 135 million pounds moving off-shore.
PP inventories were at 1.67 billion/lb with Days of Supply at 35.2 days.
PP imports were down 25 million/lb in June.
RTi PP Outlook and Suggested Action Strategies
30 Days: August PP prices are being discussed. We expect PP prices to move up the $0.04/lb either in August with the monomer move or September. 60/90 Days: Supply issues in the propylene market remain a concern. If problems linger, higher propylene prices would lead to higher polypropylene prices in the coming months.
In the PVC market, lower oil and slowed GDP growth are having an impact as PVC export prices moved lower and inventories increased. Ethylene spot moved up $0.01/lb on outages.
Pricing is flat as the market contemplates higher feedstock cost in August due to outages as production rates and inventories recover.
Lower overseas cost/pricing from falling oil, and demand constraints from lower GDP growth will prevent price hikes in the near term and support reductions once some ethylene outages are resolved longer term.
US GDP for Q2 came in at 1.2% growth below estimates as Q1 was revised lower to 0.8%.
PVC converters have not been able to pass through all price increases this year, particularly in some of the large volume segments, adding resistance to upward price progression.
Supply & Demand
Supply: Westlake operations are returning to normal, adding to supply as July showed improvement of 11% (ACC preliminary) in production volume, adding 76MM lb to inventories, the highest in 4 months.
Demand: Domestic and export demand was flat in July (ACC) with ongoing overseas demand challenged by regionally lower priced PVC from lower cost oil/naphtha and slowed GDP growth.
Chlorine: Spot pricing was flat again this week after coming off of the summer seasonal demand peak.
Ethylene: Spot prices hit a 1 yr. high this week. Planned/Unplanned shutdowns have removed nearly 19% of capacity from the supply stream. Some of these outages are expected to last into September, at which time there will be new planned TAR’s that could put additional pressure on the spot prices.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Export pricing moved lower for the first time since Q2 due to lower cost oil and slower demand. Pricing is expected flat as ethylene increases are not expected to be enough to offset improving production and inventories unless there are additional unplanned outages. 60/90 Days: Longer term we expect downward price pressure based on lower cost to produce overseas, the waning construction season and improving supplies. However, we need to get past some of the unplanned ethylene outages on the feedstock side first.
In the PET market, M&G’s new Corpus Christi, TX plant (1.1 million mt/yr capacity) completion likely to be delayed until Q1 2017.
The M&G Corpus Christi plant represented a large influx of low cost domestic PET, and its delay will amplify the import vs domestic price disparity even longer, especially with very low priced Brazilian PET flooding the markets.
The summer bottling season and summer driving season are showing signs of waning. This would result in weaker demand and easing raw material costs for PET, and when combined with competitive imports, there are plenty of drivers for a potential August price decrease.
WTI crude oil prices were on average $2/bbl higher on the week, hovering around $42/bbl for most of the week. Refinery rates moved about 1% lower from the previous week to 92.2%.
Paraxylene: Crude oil staying below $45 per barrel this week kept gasoline values low, keeping MX economical; low enough to open an arbitrage to Asia.
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: Demand has softened ahead of the G20 summit, creating bearish pricing for the remainder of Q3 in Asia. Higher levels of imports arriving into China have rose inventories and keeping supplies strong.
RTi PET Outlook and Suggested Action Strategies
30 Days: Both raw material costs and demand are expected to ease by the end of the month into September. Hold out (if possible) until then or later to realize the most of the potential PET price descent. 60/90 Days: Historically, PET prices have moved lower after the summer peak. It is coming into fruition now as raw material costs begin to lower and demand has shown signs of weakness. Forward outlooks suggest that prices should continue to fall towards the end of Q3.
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