Weekly Market Drivers for the USA
Suppliers implemented the September $.05/lb. increase for all PE resins.
An additional $.04/lb. increase for October 1st was announced by; LBI, Dow and Westlake. There is no support and this increase will not happen.
Pre-buying in August tempered demand in September. However, there is little sign of inventory improvement.
RTi clients have reported Braskem has delayed LDPE deliveries another 20-30 days.
PE Production Issues:
Exxon LLDPE hexene
Formosa 12-day outage on LLDPE butene, lost 20 MM lbs. of production
Chevron down on gas phase blow molding plant and injection
Chevron down on LLDPE
Equistar Chocolate Bayou down for 10 days unexpectedly HDPE blow molding
Spot Ethylene: Spot prices fell 12% to the mid-$.30’s after it was reported the LBI cracker restart was moved from November to October.
Naphtha: Prices remained near $400/MT this week. The 10:1 oil to ratio has returned. October will conclude the ethylene turnaround season; downward pressure is expected. Cost to produce ethylene is near $.30/lb. from naphtha.
RTi PE Outlook and Suggested Action Strategies
30 Days: Buy resin in October to meet demand, without further disruptions, prices have peaked this year. November 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. Spot deals later in the years may be available before contract prices decline. Suppliers will desperately fight to keep any margin gains and hold onto the September increase through December. Resin suppliers successfully held Q4 pricing last year. Q1 2017 will be a challenge to hold price levels.
In the PP market, contract PGP settles up $0.06/lb to $0.43/lb for SEP.
With contract PGP settled, many buyers are seeing their polypropylene contract prices move up by $0.06/lb. There are still plenty of contract prices tied to PGP. There is another portion of buyers that may have prices tied to one of the major indexes. At least one of the major indexes has moved up their PP index $0.06/lb, along with monomer. It appears the other will as well.
With that being said, some producers have focused on maintaining or regaining market share. In some of these cases, producers have not been able to recoup the $0.095/lb of PGP increases over the past two months. It is important to note that most of this activity is happening in what we would define as the high volume, commodity market segments.
It became clear that there was still some excess polypropylene supply available in September. Especially in the last half of the month, good volumes of spot material were made available to the market. Spot prices were not able to follow monomer prices higher which made for some good buying opportunities with heavily discounted prices.
We suspect there was some rate cutting from the polypropylene assets this month. If enough material was moved in the secondary markets, October could begin with a more balanced market in terms of supply/demand.
Following the contract settlement, spot PGP has traded at $0.40/lb and was offered $.3925/lb for OCT/NOV.
EIA inventories saw its fifth build in as many weeks, climbing to 2.77 million/bbl
The market still has plenty of supply issues to be worried about, but assets are slowly coming back online.
The higher inventories and lower spot prices for propylene can be partly attributed to demand destruction for propylene derivatives.
RTi PP Outlook and Suggested Action Strategies
30 Days: Current indicators suggest that PGP has peaked and October could bring a downward move. We would caution, however, that the market is not free from all its supply constraints. Expect October to settle close to flat. 60/90 Days: Further out, we see propylene becoming better balanced which should bring lower prices. We expect that polypropylene prices will also move lower.
In the PVC market, ethylene spot pricing moved strongly lower on improved supplies as export PVC pricing was up $0.01/lb., less than nominated levels, foreshadowing the domestic negotiation for Oct.
PVC increase nominations of $0.04/lb. for October are seeing eroding support as we are seeing the other side of the ethylene spike with spot pricing moving down $0.04/lb.
Ethylene decreases, import pricing and the 12% inventory build for August in final ACC data, on par with last August combine for strong opposition to full increase implementation at the very least.
Strong Asian PVC demand before the holiday week and a construction push before winter has elevated pricing above $0.40/lb. This price level is not expected to hold long enough to attract higher priced PVC exports from NA.
PVC raw material costs are expected to fall to June levels by December as we recover from the unplanned outage based spike for ethylene.
Supply & Demand
Supply: No disruptions noted, chlorine offtake indicates strong operations. Some Formosa maintenance in Oct.
Demand: September weather has been mild but wetter, possibly acting as a drag on permits and starts.
Chlorine: Spot prices, although about $40/st below the summer peak, were unchanged from last week.
Ethylene: Spot prices fell 12% to the mid-$0.30’s after it was reported the LBI cracker restart was moved from November to October.
RTi PVC Outlook and Suggested Action Strategies
30 Days: PVC pricing is under upward pressure for October from ethylene contracts expected to settle $0.03/lb higher in September, but then fall in October. Demand will define the degree of success as export pricing is reflecting a significant discount off the proposed $0.04/lb nomination. Substantial improvement of ethylene supplies will help in 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.
Brazilian PET imports reign supreme as higher freight costs make Asian sourced resin less economical.
PX and PTA settled higher for September, pushing PET prices flat to $0.01/lb. higher on the month as MEG saw little movement.
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.
OPEC has reached a deal to limit oil production to 32.5 MM/bbl. per day. As a result, oil prices reacted by jumping up 5%. Not all OPEC nations will have to abide by this as Iran, Nigeria and Libya are exempt. This comes on the heels of the Saudi King slashing cabinet minister’s salaries by as much as 20%, and taking away bonuses’ because of the low oil prices and lost revenue.
Paraxylene: Upstream MX remained strong throughout September due to limited supplies, which helped push the PX contract settlement for September $0.005/lb. higher.
PTA: The PX settlement pushed the formula based PTA settlement $0.0034/lb. higher to an even $0.41/lb. Additional Asian PTA capacity is expected to come online by the end of the year which will help increase supplies and put downward pressure on prices.
MEG: Expectations for weaker demand as well as increased supplies has created a bearish outlook on Asian MEG. US MEG is expected to be flat to marginally higher through the end of the year.
RTi PET Outlook and Suggested Action Strategies
30 Days: The raw material cost outlook calls for another potential minor increase in PET costs in October, which may be exacerbated by the loss of Brazilian imports (if Alpek manages to purchase PQS). The main driver preventing a more noticeable increase is the lack of demand, which should keep most of the increase pressure at bay. 60/90 Days: We should expect to see prices ease by the end of the year. Hold out if possible to avoid the potential increases for September/October.
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