Weekly Market Drivers for the USA
Secondary market LDPE transactions were slightly lower, $0.01/lb from the September peak.
HDPE injection molding transactions were down as much as $0.02/lb this month.
Off grade LLDPE butene prices remained firm with limited offers.
Export prices are unchanged from September.
LBI lifted the LLDPE force majure from the early summer unplanned disruption.
The $0.04/lb increase for October 1st announced by LBI, Dow and Westlake has no support.
September exports fell below the three-year average, while days of inventory stayed the same.
Spot Ethylene: Spot prices were volatile this week. Moving up close to $0.36/lb early in the week before dropping back down to ~$0.31/lb by the end of the week. There have also been some forward bids seen as low as $0.30875/lb. Motivated buyers and a Westlake Fire at their LA plant are speculative reasons for the drop.
Naphtha: Prices surged $40/mt to $445/mt this week, keeping pace will oil prices. Cost to produce ethylene increased $0.015/lb to $0.315/lb from naphtha.
RTi PE Outlook and Suggested Action Strategies
30 Days: Continue the same as last week’s strategy: Buy resin in October and November 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, polypropylene inventory remains stable heading into October.
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. We do not see any legs behind this increase.
The market has been rather uneventful. Most of the feedback we are seeing suggests demand is soft for October.
Based on the assumption that PGP should settle close to flat for October, we are expecting mostly flat PP prices with some downward potential.
Spot material remains available at a nice discount, so there are opportunities to average down prices for buyers that can partake in these markets.
Spot PGP traded at sub-$0.40/lb late this week.
Spot RGP is stable at $0.2975/lb.
EIA inventories were slightly higher at 2.78 million/bbl.
An October nomination for PGP surfaced this week calling for a penny increase.
Current spot prices would indicate an October contract price settlement of down 1 cent.
September production was down 2.9%, the lowest production month of 2016.
Demand was also down and consistent with production numbers.
Inventories were stable and Days of Supply were 34.4 days.
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 moved higher over the past week on delays in outage recovery, changing Oct ethylene contract reduction expectations from down $0.015-0.02/lb to down $0.01-0.015/lb.
PVC increase nominations of $0.04/lb for October will not see full implementation as export and spot markets have seen more modest upward movement and falling ethylene combined with increasing inventories that are undercutting the increase nomination.
Preliminary ACC data indicates a 4% increase in Sept inventory as production dropped 8%, but demand fell only 5% due mostly to a 16% decline in exports.
Ethylene decreases, modest growth in import pricing, the ending of the construction season and the 12% inventory build for August followed by an estimated 5% build in September combine for strong opposition to full increase implementation.
PVC raw material costs are expected to fall below May levels by December as we recover from the unplanned outage based spike for ethylene, despite some reversals in ethylene spot this week.
Supply & Demand
Supply: ACC reported a decline of 8% in output for September.
Demand: Inventories increased by 4% as production outstripped demand for the 3rd month in a row.
Chlorine: Spot prices, although about $40/st below the summer peak, were unchanged since early September.
Ethylene: Spot prices were volatile this week. Moving up close to $0.36/lb early in the week before dropping back down to ~$0.31/lb by the end of the week. There have also been some forward bids seen as low as $0.30875/lb. Motivated buyers and a Westlake Fire at their LA plant are speculative reasons for the drop.
RTi PVC Outlook and Suggested Action Strategies
30 Days: PVC pricing is under modest upward pressure for October that is opposed by increasing inventories and an expected declines in ethylene contracts throughout Q4. PVC pricing are expected flat to up $0.02/lb as negotiations continue and we see ethylene spot give up some of the reductions achieved this month. 60/90 Days: Raw material costs will revert to Q2 levels by the end of Q4, allowing for removal of any enforced increases and also some potential decreases. Ethylene supplies will remain improved.
In the PET market, initial October PX settlement at $0.40/lb (PTA $0.4133/lb) and rising MEG pricing could push October PET pricing 1 cent higher.
Higher freight rates continue to push Asian PET import pricing above that of PET imports from Brazil, which is currently setting the spot PET price floor.
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.
After the late September/early October crude oil price climb from ~$43/bbl to $51/bbl last week, prices have been quite stable, hovering around the $50/bbl mark. Refinery rates continued to ease, now in the mid 80%’s (lowest since January 2015).
Paraxylene: The initial October PX settlement would be $0.005/lb higher than September. The Asian contract price (ACP) for PX settled lower, at $780/mt. The lower ACP may be counteracted by higher crude oil prices, which is keeping spot PX mostly flat.
PTA: A $0.005/lb increase in PX contacts would translate into a $0.0033/lb increase in 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: Crude oil pricing at the $50/bbl and a number of plant issues in Asia overcame easing ethylene prices and resulted in rising MEG pricing.
RTi PET Outlook and Suggested Action Strategies
30 Days: October has the potential for another minor increase based on higher raw material costs from both PX/PTA and MEG. There is no indication of any decrease drivers, so buy now to be safe and avoid the potential increase. At best, October could be close to flat; at worst, an increase of 1 cent. 60/90 Days: The normal downward price pressure could return in November, but only slightly (as of current expectations). Either way, it is reasonable to assume PET prices will remain at or slightly below Summer prices, which is still low on the historical perspective.
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