Weekly Market Drivers for the USA
Suppliers are expected to successfully implement the September $0.05/lb increase.
An additional $0.04/lb increase for October 1st was announced by LBI, Dow, and Westlake.
Commodity film and stretch film producers have announced price increase of 6% for September.
September inventory data may not be substantial enough to threaten suppliers pricing position.
EIA has revised their 2017 forecast from August 2016 from oil reaching $60/bbl by the second half of 2017 to $50/bbl.
Spot Ethylene: Spot prices fell just below $0.40/lb this week. Extended cracker outages are contributing to the higher prices for a few buyers in need. Ethane cash cost to produce ethylene is below $0.10/lb.
Naphtha: Prices were up $15/mt to $400/mt this week. The 10:1 oil ratio has returned. October will conclude the ethylene turnaround season; downward price pressure is expected. 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 lower inventory. Buy resin in September and October to meet demand. Without further disruptions, prices have peaked. October will be the earliest to expect inventory growth. 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 suppliers have successfully held Q4 pricing flat for the last two years. Q1 2017 will be a challenge to hold price levels.
In the PP market, Dow restarts PDH unit.
PGP has not settled for September. Spot PGP is down but still supports a $0.06/lb to $0.07/lb increase.
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.
The secondary market was seeing more material being offered into the market this week. There is still excess material, and producers were more motivated to move pounds than in the first half on September.
There was an effort to lift spot prices early in the month, but the higher price points were not selling well. Subsequently, lower prices were able to be negotiated for certain grades. With contract prices increasing this month, discounts for spot material have widened.
Pinnacle and P66 have planned outages starting this month. We are also hearing there could be other producers cutting rates as well. It does make sense to cut now with September being a high cost to produce month, plus the market is still carrying excess pounds.
Initial discussions for 2017 contracts have started to take place.
September PGP was nominated up $0.07/lb.
Spot PGP moved lower this week to $0.41/lb.
Spot RGP is down two cents from last week to $0.325/lb.
Propylene inventories were up for the 4th week in a row to 2.40 million/bbl.
Dow PDH unit restarted.
RTi PP Outlook and Suggested Action Strategies
30 Days: September PP prices will be higher. We expect contract PP prices will be up by at least $0.05/lb for the majority of the market, possibly higher depending on monomer settlement. Spot market prices continue to offer good opportunities. 60/90 Days: The propylene market signals it may be hitting its peak. Any new unplanned outages could tighten conditions again, but we expect to see lower PGP and PP prices during this timeframe.
In the PVC market, hopeful easing of ethylene spot pricing (down $0.0075/lb this week) from cracker restarts will lead to more reductions through the EOY.
Increase nominations of $0.04/lb for October are seeing support from the ethylene spike due to outages, but are undercut by high production levels leading to a 12% inventory build for August in final ACC data, on par with last August.
Upward movement of Asian PVC for October will likely support some upward export price movement, but less than half that of the $0.04/lb nomination for domestic pricing as export pricing remains a drag on domestic pricing.
PVC raw material costs are expected to fall to June levels by December, clawing back the cost escalations from all of the cracker outages.
Supply & Demand
Supply: Formosa to conduct maintenance next month. Strong production maintained in August, adding nearly 47MM lbs to inventory in final August numbers (ACC).
Demand: Demand was a bit stronger in the final August numbers coming from increasing exports as housing starts decreased leaving domestic demand flat.
Chlorine: Spot prices, although about $40/st below the summer peak, were unchanged from last week.
Ethylene: Spot prices fell just below $0.40/lb this week. Extended cracker outages are contributing to the higher prices for a few buyers in need.
RTi PVC Outlook and Suggested Action Strategies
30 Days: PVC pricing is under upward pressure for October from climbing ethylene costs, but offset by strong production, the end of construction season, and lower export prices. Look for eventual improvement of ethylene supplies while pushing down attempts to increase price. 60/90 Days: Raw material costs will revert to the end of Q2 by the end of Q4, allowing for removal of any enforced increases. Ethylene supplies will improve from restarts this week and more to come.
In the PET market, September PX initially settled $0.005/lb higher to $0.395/lb; September PET likely to be flat to $0.01/lb higher.
Higher freight rates continue to push Asian PET imports higher, allowing Brazilian imports to continue to set the import price floor. Domestic spot pricing has been mostly flat since early August, after seasonal demand and raw material costs started to fall.
Alpek is wrapping up negotiations with Petrobra for the purchase of the Petroquimica Suape (PQS) PET facility in Brazil (the main source of the low priced imports). The outcome should result in a return to the normal import balance seen before the influx of PET from PQS.
WTI crude oil prices averaged lower on the week at around $44/bbl, after seeing some increases towards $46/bbl by week’s end. Refinery rates are staying in the low 90%’s.
Paraxylene: Lower crude oil pricing and tighter mixed xylene (MX) supplies kept spot MX stable on the week. Although the PX initially settled at up $0.005/lb, there are still some expectations for a rollover.
PTA: The initial PX settlement would put the PTA formula price at around $0.41/lb. Price easing is expected to resume starting in November, with October pricing projected as a rollover from September.
MEG: A $0.02/lb increase was heard for October, which would ease some of the downward movements projected for PX/PTA alongside the weaker demand for PET.
RTi PET Outlook and Suggested Action Strategies
30 Days: Stable pricing is expected for September, but October could see higher PET pricing due to the pending $0.02/lb MEG increase. 60/90 Days: MEG and PX/PTA are expected to resume their recent price declines around November. Either buy at September levels or wait until November to avoid a potential October increase.
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