Weekly Market Drivers for the USA
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, October begins the supply recovery for North America and the globe. Most maintenance projects will be concluded for both ethylene and polyethylene. October inventories are not expected to be high enough for price relief.
The $0.04/lb increase for October 1st announced by LBI, Dow and Westlake has no support and will not be discussed further in October.
Inventory and export data will be available next week. This will be a first snap shot of the Q4 expectations.
Off grade and export market prices remain firm. These two markets will be the key indicators of Q4 pricing and will be the primary driver RTi will monitor over the next weeks and months.
Ethylene feedstock prices retreated this week, with further declines expected.
Ethane prices were slightly up this week to $0.24/gal. Cash cost to produce ethylene is up $0.015/lb from August. Ethane will track with natural gas through the winter season.
RTi clients in Mexico have been notified their first Braskem LDPE truckloads will deliver next week.
Spot Ethylene: Spot prices fell again to $0.32/lb this week. Traders speculate the spot prices to return to the mid $0.20’s by year end due to good supply balance.
Naphtha: Prices increased $10/mt to $409/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 $0.30/lb from naphtha.
RTi PE Outlook and Suggested Action Strategies
30 Days: Continue the same as last week’s strategy. 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 have successfully held Q4 pricing flat for the last 2 years. Q1 2017 will be a challenge to hold price levels.
In the PP market, October PGP and PP expected to be flat to down.
There is one polypropylene increase that we know of that is scheduled for an October 1st implementation. The announcement was made by LBI on September 1st calling for $0.05/lb.
Without the support of other producers or the market, we see very little chance of this increase going through.
Excess material remains in the domestic market, and is being offered into the secondary markets.
Spot prices are flat to down and are very much negotiable. Producers have not been able balance the supply/demand dynamic.
Spreads between contract prices and spot prices are in double digits.
PP imports for August were recently posted. Volumes were stable from July at roughly 75 million/lb.
2017 contract discussions are active. Buyers are finding a much friendlier environment versus last year.
Spot PGP traded at $0.40/lb late this week.
Spot RGP is down on the week to $0.295/lb.
EIA inventories were stable at 2.74 million/bbl.
Propylene supply issues are slowly improving and are expected to continue to improve in coming weeks.
We have not heard of any nominations for October PGP.
Current spot prices would indicate an October contract price of $0.42/lb, down 1 cent.
RTi PP Outlook and Suggested Action Strategies
30 Days: We are expecting flat to down prices for October. Producers are focused on market share. This could lead to some margin erosion in the October price as well. 60/90 Days: Barring any unplanned outages, we see propylene supply improving and prices coming down. Polypropylene prices will follow.
In the PVC market, ethylene spot pricing fell nearly 9% as chlorine was steady, supplying strong downstream PVC operations.
PVC increase nominations of $0.04/lb for October are not expected to see full implementation. Export and spot markets have seen modest upward price movement; however, falling ethylene prices combined with strong operations are undercutting the nomination.
Ethylene decreases, more modest growth in 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.
Asian PVC was quiet during the holiday week without strong indicators for post-holiday demand.
PVC raw material costs are expected to fall below May levels by December as we recover more rapidly from the unplanned outage based spike for ethylene.
Supply & Demand
Supply: No disruptions noted, strong operations are indicated. Some Formosa maintenance is expected this month.
Demand: October has started milder with some demand reduction during hurricane Matthew, followed by a pick-up in demand depending on degree of East Coast damage.
Chlorine: Spot prices, although about $40/st below the summer peak, were unchanged from last week.
Ethylene: Spot prices fell again to $0.32/lb this week. Traders speculate the spot prices to return to the mid $0.20’s by year end due to a good supply balance.
RTi PVC Outlook and Suggested Action Strategies
30 Days: PVC pricing is under upward pressure for October from ethylene contracts settling $0.0275/lb higher in September, but then fall by nearly as much in October. Demand will define the degree of success, something less than $0.03/lb is likely. Substantial improvement of ethylene supplies will help in reducing attempts to increase price. 60/90 Days: Raw material costs will revert to Q2 levels by the end of Q4, allowing for removal of any enforced increases. Ethylene supplies will remain improved from restarts.
In the PET market, crude oil prices on the rise; could push feedstock pricing higher.
PX and PTA settled higher for September, pushing PET contract prices flat to $0.01/lb higher on the month as MEG saw little movement. Spot assessments were flat on the week.
Alpek/PQS negotiations were delayed 30 days, expected to be complete by the end of October. If the sale is confirmed, it should mark the end of the Brazilian imported PET price domination we have seen for the past month and allow Asian imports to return as some of the lowest priced imports.
WTI crude oil prices made some notable gains this week, with prices ending near $50/bbl, an increase of about $3/bbl on the week. Refinery rates dropped below the 90% mark (down to the upper 80%’s) for the first time since May of this year.
Paraxylene: Upstream MX supply availability remained limited this week, keeping the upward pressure on MX pricing. PX spot prices were stable due to unchanged market dynamics.
PTA: 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: Slightly tight supplies were met with slightly lower demand, creating balanced fundamentals as well as keeping spot assessments flat. While US buying activity was deemed weaker, brazil is seeing some stronger demand.
RTi PET Outlook and Suggested Action Strategies
30 Days: Raw material costs are currently expected to stay strong for October, at or near September levels. Crude oil finally broke above the $50/bbl mark which could easily cause downstream PX/PTA and MEG to see price increases for October. Buy as needed. 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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