Weekly Market Drivers for the USA
A December market price concession has not been confirmed.
The spread between prime and off grade resin remain as much as $.10/lb. The duration of this large delta will be a key indicator of potential additional decrease.
Next week’s inventory report may not reflect the suppliers position after the export push in December.
Sources report Braskem LDPE sales are selling very aggressively to gain market share in Mexico and Latin America.
Spot Ethylene: Spot ethylene pushed above $0.25/lb this week. 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. 60/90 Days: Depending on the inventory draw in November/December, it is reasonable to expect some suppliers to announce a price increase attempt for February.
In the PP market, polypropylene inventories draw by 153 million pounds!
December polypropylene prices will move lower with PGP in December, down $0.02/lb to $0.04/lb.
The polypropylene market is in the process of transitioning from a soft market to one that is more balanced.
We started seeing signals in the secondary markets that availability was not as fluid as it has been. This is now backed up with the ACC data that was just reported.
Producers throttled back production down to an 81.3% operating rate. They also exported 120 million pounds in November. The net result was a big draw in inventories.
Days of Supply are back down to 33.3 days which is a much more comfortable position for producers.
We think the heavily discounted spot market is pretty much over, or very close.
Spot propylene markets seemed to stabilize over the past week.
Spot PGP is currently valued at $0.295/lb.
Spot RGP is slightly up to $0.155/lb.
We continue to hear that December PGP contract pricing will settle down by $0.02/lb, but based on current spot numbers it should settle down by $0.035/lb.
EIA propylene inventories continue to climb hitting another yearly high of 4.516 million/bbl.
Propane and butane remain disadvantaged to ethane as a steam cracker feed.
RTi PP Outlook and Suggested Action Strategies
30 Days: Polypropylene contract prices will move lower in December with PGP. Spot markets are shifting. Fewer opportunities remain available and spot prices are likely to rise. 60/90 Days: We are nearing a market bottom and expect that one will hit in the next 30-60 days.
In the PVC market, ethylene contract for November settled down $0.0425/lb with some upward movement in the spot market for December suggesting a relatively flat settlement in December for feedstocks.
PVC pricing is expected flat in November as strength in export pricing is expected to relax in coming weeks due to seasonal softening of demand and the strong US$.
November raw material costs are down $0.02/lb., down to July levels. December raw material cost are expected up fractionally from higher ethane and ethylene spot pricing. Further improvements in ethylene supply will help reduce volatility in 2017.
Export pricing edged higher toward $0.375/lb as support for export pricing is expected to wane due to seasonal demand declines in the northern hemisphere and improving supplies.
Supply & Demand
Supply: The operating rates will see improvement into Q1 after maintenance completions.
Demand: Demand is expected to move lower with the onset of colder winter weather, but supported longer term by expectations of infrastructure spending and strength of home renovations.
Chlorine: Spot prices have remained steady to slightly higher for most of November due to some supply restrictions.
Ethylene: Spot ethylene pushed above $0.25/lb this week. 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: Sustained export pricing and a balanced market from planned outages will convert over this period into a market with increasing supplies and downward export price pressure next year depending on the state of the strength of housing in China based on government stimulus and Asian GDP growth. 60/90 Days: Ethylene supplies are looking for further improvement to keep feedstock costs lower as PVC is expected to see building inventories and lower export pricing.
Rising global PET prices pressure spot domestic PET higher.
PET feedstocks have been seeing upward movement in Asia since October, pushing raw material costs up while creating bullish short term expectations.
A reduction in Asian PET production margins helped slow the effects of both the increased raw material costs and higher freight costs. This kept import pricing from climbing to the point of losing market share to NA domestic producers.
The Alpek/PQS negotiations are still pending.
WTI crude oil prices have been hovering around the $50/bbl mark for most of the week, as the OPEC production cuts are met with increased US production to compensate. Refinery rates remain stable at around 90%.
Paraxylene: The December Asian contract price for PX was a rollover from November, at $0.361/lb. Mixed xylene prices have been moving higher in response to higher gasoline prices, but domestic PX prices seem to be reacting more to the Asian markets and market dynamics rather than raw material costs.
PTA: Asian PTA spot prices moved slightly higher on an uptick in demand with tightened supplies. The forward outlook shows somewhat of a reversal seen from November, with PX/PTA moving steadily lower heading into Q1 2017.
MEG: Bullish expectations in Asia continues to push forward pricing higher, especially after the OPEC oil production cut seen last week that raised Brent crude oil prices towards nearly $55/bbl last week.
RTi PET Outlook and Suggested Action Strategies
30 Days: Domestic crude oil prices are still reacting to the balance between OPEC and US production. Prices staying within the $50/bbl range may help slow the potential incline in MEG, but the Asian market dynamics still have a strong grasp on the MEG price direction. PET price increases are still imminent.
60/90 Days: Recent raw material cost outlooks point towards a slowdown by January/February, driven primarily by expectations for PX/PTA prices easing into Q1 2017
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