Weekly Market Drivers for the USA
Export availability from supplier direct sales has improved. In August and September, the export market relied on the brokers to meet incremental supply needs.
Off grade pricing for HDPE and LDPE has improved since August due to improved availability. However, multiple car offers have not been prominent. Off grade LLDPE butene pricing is down $0.01/lb. LLDPE is still tight due to the August Formosa outage.
The $0.04/lb. increase for October 1st announced by LBI, Dow and Westlake has no support.
Southeast Asia and China prices firmed as expectations of stronger demand are reported.
Reuters reported that U.S. crude inventories rose by 2.4 million barrels this week; as found by a Reuter’s poll of oil market analysts. In the previous week of Oct 7, oil stocks grew by 4.9 million barrels.
Spot Ethylene: Prices retreated from the low $0.30’s into the high $0.20’s for the first time since August 3rd. The market expected lower prices as outages returned to production, followed by a limited spring turnaround season.
Naphtha: Prices remained near $445/mt this week keeping pace with oil prices. Cost to produce ethylene increased $0.015/lb. to $0.315/lb. from naphtha. PE pellet cost to make is near $0.46/lb.
RTi PE Outlook and Suggested Action Strategies
30 Days: Continue the same 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, spot PGP trades at $0.385/lb.
Although there is one price increase announcement in the market for October, we have not heard any talk of higher polypropylene prices for October.
PGP has not settled for October, but it is expected to decrease by close to a penny. Polypropylene prices will follow PGP lower at the very least. We are seeing some instances where even lower prices are being negotiated.
Demand appears to be soft this month with relatively healthy inventories at the converter level. Buyers are only buying what they absolutely need and waiting for lower prices in coming months.
P66 and Pinnacle both have PP assets in maintenance this month, and the market has barely noticed.
Producer inventories are down 55 million/lb from their May peak but 150 million/lb higher than the beginning of the year.
Spot PGP traded lower to $0.385/lb.
Spot RGP is down over two cents from last week to $0.275/lb.
EIA inventories rose above the three million barrel mark to 3.01 million/bbl. EIA inventories have been on an 8- week build trend.
The October PGP nomination of up $0.01/lb has been retracted. Current settlement offers are at down $0.005/lb. Buyers are pushing for more.
A $0.385/lb spot price would support a $0.02/lb decline. A final settlement should surface in the coming days.
RTi PP Outlook and Suggested Action Strategies
30 Days: Slightly lower PP prices for October. Producers are focused on market share. This could lead to some margin erosion throughout the 4th QTR. 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 resumed downward movement increasing expectations for contract to return to Aug levels in Oct and push PVC towards flat.
PVC increase nominations of $0.04/lb for October are losing traction as export pricing has flattened since the beginning of the month after demand fell in September. PVC is expected flat to up $0.01/lb.
Final ACC data indicates a larger 11% increase in Sept inventory as production dropped 6%, but demand fell 6% due mostly to a 16% decline in exports.
PVC raw material costs are expected to fall below May levels by December based on continued improvement in ethylene supplies and movement into the winter season for the northern hemisphere.
Supply & Demand
Supply: ACC reported a smaller decline of 6% in output for September in final numbers.
Demand: A smaller decline in production increased Inventories by 11% 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: Prices retreated from the low $0.30’s into the high $0.20’s for the first time since August 3rd. The market expected lower prices as outages returned to production, followed by a limited spring turnaround season.
RTi PVC Outlook and Suggested Action Strategies
30 Days: PVC pricing is seeing reduced upward pressure for October, strongly opposed by increased inventories and an expected decline in ethylene contracts throughout Q4. PVC pricing are expected flat to up $0.01/lb as negotiations continue. 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, October PX fully settled at $0.40/lb (PTA $0.4133/lb). Stable raw material costs should solidify stable PET pricing through the end of the year, after absorbing the ~$0.01/lb October increase.
Asian sourced import PET pricing was seen closing in on Brazilian prices, at the expense of reduced margins. Brazilian PET still holds the floor, but Asian prices are within a couple cents away.
The domestic PET spot prices started to move higher due to the nearing completion of the Alpek/PQS negotiations. 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 domestic and Asian import pricing to recover.
WTI crude oil prices continued their somewhat stable nature from last week, with prices edging toward $52/bbl and then easing back down close to $50/bbl by the end of the week, which put the weekly average at about ~$50.5/bbl. Refinery rates were mostly stable in the mid 80%’s.
Paraxylene: The October PX settlement is $0.005/lb higher than September. Spot PX in Asia started to see some upward movement, in line with the US October PX increase.
PTA: A $0.005/lb increase in PX contacts translated into a $0.0033/lb increase in PTA. Market participants in China returned from holiday with an uptick in demand, therefore increasing spot PTA assessments.
MEG: The combination of downward pressure from ethylene prices dipping ~15% last week and upward pressure from crude oil prices around $50/bbl and MEG supply tightness kept MEG pricing flat to slightly higher.
RTi PET Outlook and Suggested Action Strategies
30 Days: An October increase is imminent. Try to buy ahead if possible, but expect stability heading forward. 60/90 Days: A downturn in PET pricing is becoming less likely. Instead of lower pricing by the end of the year, we are expecting stability at or near Summer 2016 prices. 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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