Weekly Market Drivers for the USA
The 6-year average of $0.07-$0.10/lb between the cost to make the naphtha pellet and the NA selling price will be close to $0.15/lb in September. This increase in domestic pricing will challenge NA demand and open the door to imported commodity finished products, IE: The seasonal retail bag sales to big box stores.
August has turned out to be a very active month for exporters, distributors and brokers. The recent buying activity due to the September price increase announcement will most likely lead to an August inventory draw.
The off grade markets realized a surge in buying which has created a price increase push as material was sold and bidding began.
Exxon’s plant in Baton Rouge, LA continues to have difficulties as the flood waters retreat.
Stretch films producers announced a 6% September price increase. Suppliers see this as support and acceptance for the September increase.
Global prices are expected to be stable to lower this fall due to weak demand.
Spot Ethylene: Distribution problems due to the Baton Rouge flooding are supporting the high spot ethylene prices above $0.38/lb. a 12 month high. This is affecting a small part of the ethylene market in this region.
Naphtha Prices have returned to tracking with oil and increased $30/MT in the last week to near $385/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: Expect the September increase to be implemented due to supply disruptions and reason stated in the drivers. Monitor railcar delays due to flooding. An additional increase may be announced to support the September announcement. 60/90 Days: The price increase announcement changed the market discussion. Price could remain at September +$0.05/lb level through October/November despite potential inventory gains. Suppliers will desperately fight to keep any margin gains and might hold onto the next increase through December.
In the PP market, Total amends their September 1st PP price increase!
Total Petrochemicals & Refining USA, Inc. (TPRI) issued a notification dated August 25, 2016 that informs polypropylene customers that their original announcement of a $0.04/lb price increase is being amended to include an additional increase of the change in PGP from August to September. So, effectively the increase will be four cents per pound plus the change in PGP from August to September.
LBI and Braskem also have letters out calling for a PP price increase for September 1st . We have not seen any other announcements beyond these.
August polypropylene contract prices are mostly moving up $0.035/lb consistent with the move in contract PGP prices for August. There is a small segment of the market that saw prices roll flat in August, but they are expected to catch up in September.
August Contract PGP settled up $0.035/lb to $0.37/lb.
Spot PGP is being valued around the $0.405/lb mark based on recent bids and offers.
The “implied” contract price for September based on these spot levels is $0.43/lb, and increase of $0.06/lb from August.
Spot RGP was bid this week at $0.29/lb.
Propylene inventories reported by the EIA were down for the seventh week in a row. Levels are currently at 2.197 million barrels.
The North American propylene market continues to suffer from supply issues.
The latest outage is from Enterprise. They recently took down their Splitter III for a short maintenance event that should be completed by months end.
RTi PP Outlook and Suggested Action Strategies
30 Days: September PP prices will be higher. The current outlook is for PP prices to increase the same as PGP prices which could be as much as $0.06/lb. 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, export prices moved lower on a lack demand and oil price uncertainty even as domestic ethylene moved higher from unplanned outages.
Pricing is flat as the market contemplates higher feedstock costs in August/September due to unplanned outages as PVC production rates and inventories continue to recover.
Low overseas cost/pricing from low oil, and demand constraint from lower GDP growth have hampered interest and pricing for this key outlet for PVC producers as we move to the end of the construction season.
PVC converters have struggled with price pass through, particularly in some of the large volume segments, adding resistance to upward price progression.
Supply & Demand
Supply: PVC production weathered the floods in LA remarkably well as inventories grew by 70MM lbs (ACC) last month and are expected to continue to see improvement.
Demand: Domestic and export demand was flat in July (ACC) with overseas demand challenged by regionally lower priced PVC and less robust demand.
Chlorine: Spot pricing is flat from last week after moving a total of $20/st lower from the summer demand peak seen in June.
Ethylene: Due to the flooding in Louisiana, and Exxon’s olefins unit suffering an unplanned outage, spot ethylene prices moved up nearly $0.02/lb on the week, and over $0.05/lb for the month. The Exxon unit could be down until October, resulting in Exxon becoming a major ethylene buyer.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Export pricing eased lower even as ethylene moved higher. Pricing is expected flat despite the current spike in ethylene costs as we move toward the end of constructions season. Look for any further worsening of ethylene supplies or unplanned PVC outage that might push the market. 60/90 Days: Longer term we expect downward price pressure once ethylene supplies are improved by November and the construction season demand winds down.
In the PET market, PX/PTA contracts settle lower and MEG mostly flat, lending to a 1-2 cent decline in PET contracts for August.
Low priced imports from Brazil continues to impact the domestic PET market, setting the price floor, and remaining mostly flat on the week. While import pricing remained low, Asia PET prices saw a minor uptick in pricing due to higher crude oil prices raising PET raw material costs.
On the demand front, both bottle and carpet markets have tracked demand growth in line with (or slightly above) US GDP growth from last year, all of which are in the 2-3% range. Operating rates have been consistent at the 85-90% range.
WTI crude oil prices peaked at just under $49/bbl this week, easing off towards the $47/bbl range by Friday. Refinery rates continues at the low to mid 90%’s.
Paraxylene: PX for August settled $0.02/lb lower from July, at $0.39/lb. MX values have remained quite weak during the peak demand season, despite rising crude oil prices.
PTA: The formula based PTA contracts settled a little less than $0.015/lb lower, at $0.4066/lb. Demand for PX/PTA has slowed in Asia ahead of the G20 summit shutdowns.
MEG: Bullish expectations and higher import pricing into Asia will likely create upward price pressure for MEG heading into September, but as of August, MEG has been mostly flat.
RTi PET Outlook and Suggested Action Strategies
30 Days: Current raw material cost outlooks are bearish. This should translate into lower PET pricing if correct, but crude oil is still the variable that could change this due to its unpredictability. Long term crude oil price outlooks at this time call for a steady rise through the end of the year, approaching $60/bbl by the end of 2017. 60/90 Days: Historically, PET prices have moved lower after the summer peak. As long as Brazilian imports continue to impact domestic markets and crude oil stays below $50/bbl, we can expect prices to decrease heading into Q4. Hold out if possible to realize the most of this downward price pressure.
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