Weekly Market Drivers for the USA
A market wide $0.03/lb. price decrease was conceded by PE suppliers in November.
Multiple suppliers have indicated that $0.02-$0.05/lb. decreases in December are possible.
Off grade market prices for HDPE injection and LLDPE butene were sold below $0.50/lb. in November.
Off grade HDPE blow molding is now selling below $0.45/lb.
EIA expects Brent crude oil prices will average close to $48/ barrel in the fourth quarter of 2016 and in the first quarter of 2017. Forecast Brent prices average $43/b in 2016 and $51/b in 2017. West Texas Intermediate (WTI) crude oil prices are forecast to average about $1/b less than Brent prices in 2017.
Spot Ethylene: Spot ethylene continues to stay below $0.25/lb. Production rates are healthy and availability is exceeding demand. Q1 2017 turnaround season will be limited with additional capacity expected by April/May 2017.
Naphtha: Prices are up $15/MT from the mid-November low of $420/MT keeping pace with oil price changes. Cost to produce ethylene is $0.31/lb. from naphtha. Cost to produce a PE pellet is near $0.45/lb.
RTi PE Outlook and Suggested Action Strategies
30 Days: Continue the same strategy. Buy resin in December to meet demand. Secondary market buyers should aggressively pursue better pricing. Multiple suppliers have indicated a potential $0.02-$0.05/lb. price decrease in December. 60/90 Days: Do not build year-end inventory. In addition to the November $0.03/lb. decrease, buyers should expect more in December and even January. It is reasonable to expect as much as $0.04-$0.05/lb. of additional decreases.
In the PP market, PGP could test yearly lows as oil rises.
December polypropylene prices are set to take another step lower for December.
We have not heard of any December PGP nominations as of yet. However, contract PGP is expected to drop by at least $0.03/lb to $0.04/lb based on current spot prices.
After the December drop, PGP and polypropylene prices will have shed over $0.10/lb in the last three months.
The NA PP market is still over-supplied. Excess pounds are being moved into spot markets at heavy discounts to contract prices.
We are also seeing material getting pushed into the export markets to help clear the surplus. Export volumes were up 67.5% from September to October. We expect that has continued into November.
With lower monomer prices, spot PP discounts and margins are coming out of contract prices; the incentive to import has vanished.
Spot PGP is down to $0.29125/lb and is bid at $0.285/lb.
Spot RGP is currently valued at $0.15/lb.
EIA propylene inventories continue to climb hitting a yearly high of 4.468 million/bbl.
Propylene is pricing to find demand. The numbers are very close to working for exports to NE Asia markets.
Propane and butane are disadvantaged to ethane as a cracker feed. We expect to see feed switching to take place soon. This will lower propylene yields.
PDH and metathesis resistance points are in the $0.24/lb to $0.26/lb range.
RTi PP Outlook and Suggested Action Strategies
30 Days: Polypropylene prices will move lower in December. Good buying opportunities exist for anyone capable of taking advantage of year-end deals. 60/90 Days: It is possible we see further downward movement into the New Year. At that point, the market will likely be close to finding its bottom.
In the PVC market, ethylene spot averaged $0.07/lb lower in November, undercutting the October increase as export markets appear fractionally weaker.
PVC increases of $0.02/lb in October are being reversed in November as export pricing appears to have topped out and ethylene contract will move significantly lower in November.
November raw material costs are forecast down $0.025/lb give or take $0.003/lb with more easing of cost expected in December. A good combination for 2017 price and share discussions.
Export pricing edged lower toward $0.37/lb as support for exports saw some disruption in global flows to India in particular.
Supply & Demand
Supply: The market is balanced as some maintenance is completed. Demand: Demand continues with the slow start for winter with strong housing starts.
Chlorine: Spot prices have remained steady to slightly higher for most of November due to some supply restrictions.
Ethylene: Spot ethylene continues to stay below $0.25/lb. Production rates are healthy and availability is exceeding demand. Q1 2017 turnaround season will be limited with additional capacity expected by April/May 2017.
RTi PVC Outlook and Suggested Action Strategies
30 Days: PVC pricing sees a reversal of the October $0.02/lb increase followed by negotiations for next year. Downside pressure from ethylene reductions and a lack of price support in end-use markets are overwhelming resistance from a balanced market due to late season demand and plant maintenance. 60/90 Days: Raw material costs will fall by $0.03-0.04/lb in Q4, allowing for some potential decreases. Ethylene supplies will remain improved.
In the PET market, higher November PX/PTA and MEG contract settlements push formula based PET nearly $0.01/lb higher.
PX/PTA has been on a steady, gentle upward slope for the past few months, as MEG was the main driver of the price increases we have seen for contract formula PET. On the other hand, spot pricing has been mostly stable since an initial uptick back in mid-October.
There are few updates regarding the Alpek/PQS negotiations as of late, the most recent of which was a comment referring to the deal being “in good terms”. Asian PET import pricing continues to rise due to increased shipping costs, giving an edge to both Brazilian imports and domestic PET resin.
News of the OPEC production cut pushed WTI crude oil prices higher this week, reaching towards $51/bbl by week’s end. Refinery rates remained in the upper 80%’s and lower 90%’s for most of November.
Paraxylene: Upstream mixed xylenes were on a downward trend for most of November, but saw a minor rebound by month’s-end. MX prices are still lower than both the September and October averages, and the outlook is somewhat bearish.
PTA: The Asian PTA market continued a state of flux due to the combination of bullish expectations for Dec/Jan, as well as the fact that Brent crude oil prices have stayed below the $50/bbl mark. US PTA outlook shows flat to lower prices (following the formula price off PX) through January.
MEG: US exports of MEG have been seen heading toward Asia as the gap in US and Asian MEG pricing has widened. Increased US exports of MEG will reduce domestic supply availability, which would put upward pressure on contract pricing for December.
RTi PET Outlook and Suggested Action Strategies
30 Days: Market fundamentals have taken a backseat to the feedstock price changes, as it appears MEG is leading the forefront in the PET price direction. Buy sooner rather than later to avoid the likely PET price increases. 60/90 Days: MEG is leading the forefront in driving the PET price as of late. With the OPEC production cut in play, crude oil prices at or above current levels will put further upward pressure on MEG pricing, and subsequently, PET pricing heading into Q1 2017.
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