Weekly Market Drivers for the USA
Suppliers have a $0.05/lb price increase pending in September. Expectations are that the $0.05/lb price increase will be implemented due to supply disruptions.
An additional $0.04/lb increase for October 1st was announced by; LBI, Dow and Westlake.
Brokers are claiming record 2016 volumes in August.
Off grade LLDPE and HDPE markets prices settled in the mid-$0.50’s at the end of August.
August inventory and export reports will be available next week; market sources expect a draw.
Braskem in Mexico has committed to LDPE and HDPE local deliveries in mid-September.
Spot Ethylene: The August contract price settled $0.0275/lb higher, at $0.33/lb. Spot prices retreated $0.02/lb this week as disruptions are resolved. Ethane cash cost to produce ethylene is below $0.10/lb.
Naphtha: Prices were slightly down to $396/MT this week. Cost to produce ethylene is near $0.30/lb from naphtha.
RTi PE Outlook and Suggested Action Strategies
30 Days: Expect the September increase to be implemented due to supply disruptions and the reasons stated in the drivers. Buy resin in September and October to meet demand; without further disruptions, prices have peaked. 60/90 Days: Prices 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. Resin supplier has successful help Q4 pricing the last two years.
In the PP market, spot PGP ends the week lower.
Total, Braskem, and LBI have $0.04/lb increases announced for September. Total amended their announcement to include an additional increase to include the change in PGP from August to September.
LBI has issued a price notification calling for a $0.05/lb increase effective October 1st.
We expect to see the majority of contract prices move up by as much as the increase in PGP for September. We do not see PP prices increasing anymore than PGP, for margin expansion. Some price points could move less than the PGP movement.
Pinnacle Polymers is schedule to take their Garyville, LA plant down in October for repairs and upgrades.
Polypropylene import numbers were reported lower for July at roughly 75 million pounds. This is still 30 million pounds higher than 2015 averages, indicating that imports are being used as part of overall buying strategies.
August Contract PGP settled up $0.035/lb to $0.37/lb.
September PGP was nominated up $0.07/lb.
Spot PGP traded as high as $0.425/lb last week, but was down over a penny to $0.4125/lb this week, trading several times at this price.
Spot RGP was traded slightly lower this week at $0.33/lb.
Propylene inventories reported by the EIA were up for the second week to 2.324 million/bbl.
Contract PGP in Europe for September settled €20/mt to €690/mt ($0.352/lb)
Spot PGP CFR China is currently valued at $875/mt ($0.397/lb).
RTi PP Outlook and Suggested Action Strategies
30 Days: September PP prices will be higher. Much will depend on where PGP prices settle. Many price points will move with the monomer increase, but it could depend on how much excess inventory remains in the market. 60/90 Days: Supply issues in the propylene market remain a concern. We expect both PGP and PP to peak during this timeframe, followed by lower prices.
In the PVC market, ethylene spot eased modestly lower as ethylene contract pricing for August settled up $0.0275/lb and all PVC producers have nominated a $0.04/lb increase for Oct. 1st.
Increase nominations came from all producers as they contemplated higher ethylene costs in August/September even as construction demand will see seasonal declines and export pricing is moving downward.
Considered a stake in the ground and an attempt to gain back margin loss from ethylene hikes before year end negotiations, the nomination will be undercut the ending construction season, recovery of unplanned ethylene outages (the faster the better when it comes to pushing back on the nomination) and lack of export pricing support.
Raw material cost is up $0.02/lb in August since June with a Sept flat, setting a peak before declining in Q4.
Supply & Demand
Supply: No issues noted. Formosa to conduct upstream maintenance next month.
Demand: Job generation figures in August were less than expected, reinforcing expectations of a fed rate hike in December, delayed from September. Expectations of an increase could generate more home buying interest before mortgage rates move higher.
Chlorine: Chlorine prices, although about $40/st below the summer peak, were unchanged from last week.
Ethylene: The August contract price settled $0.0275/lb higher, at $0.33/lb. Spot prices retreated $0.05/lb this week as disruptions are resolved. Ethane cash cost to produce ethylene is below $0.10/lb.
RTi PVC Outlook and Suggested Action Strategies
30 Days: PVC pricing is under upward pressure for October from climbing ethylene costs, but with expected offset from good production, seasonally reduced demand, lower export prices and the upcoming year end negotiations. Look for improvement of ethylene supplies noted by spot pricing to help push back on the nomination. 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, Asian imports competing with Brazilian imports amidst waning demand and potentially lower raw material costs for September.
Low priced imports from Brazil had set the price floor for the past month, but recent offers from Asia have undercut the Brazilian imports. While the volume of imports from Brazil remain high, that could change as Alpek is close to purchasing the Brazilian PET source facility.
Domestic spot PET was assessed slightly lower on the week, mainly a reaction to more competitive imports and decent raw material costs. Global markets, on the other hand, were flat to marginally higher, following upward moving PTA and MEG in the regions.
WTI crude oil prices have been steadily rising through the week, starting around $44/bbl and ending at around $46/bbl by weeks’ end. Refinery rates moved ~1% higher from the previous week.
Paraxylene: An unplanned outage pushed MX spot pricing higher, but was balanced by lower gasoline values. The overall effect on PX should be minimal as a result.
PTA: Spot PTA has been affected by falling downstream PET demand and subsequent pricing. Asia PX/PTA outlook shows signs of further weakness as more capacity comes online through the end of this year.
MEG: The conclusion of the G20 summit has caused an expectation for a strong return in demand. This may only affect short term pricing, as demand should normalize by next month.
RTi PET Outlook and Suggested Action Strategies
30 Days: Crude oil has been somewhat back-and-forth for the past few weeks. If crude oil remains below $50/bbl for September, we could see flat to lower PET prices. 60/90 Days: The current outlook shows the potential for PET price flat to slightly lower through the remainder of the year. Buy as needed, since outlooks don’t currently show any signs of increasing going forward.
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