Weekly Market Drivers for the USA
The decrease was not a supplier consensus. Some suppliers refused to accept the movement. With the known 2017-2018 capacity improvements, suppliers could not afford to lose market share by holding firm on the $0.02/lb.
The late settlement of the December decrease will prompt suppliers to aggressively push the February increase to regain lost margin.
North American inventory restocking in January and inventory buying decisions before the February increase could also factor into the chance of a price increase.
Late January oil prices will significant impact PE prices. Higher prices could stimulate export and reduce inventories.
Spot Ethylene: Spot Ethylene prices increased $0.05/lb. since mid-December due to three ethylene cracker planned outages.
Naphtha: Prices are $50/MT higher since November, tracking with oil prices. The cost to make a pellet increased $0.02-$0.03/lb. to near $0.50/lb.
RTi PE Outlook and Suggested Action Strategies
30 Days: The February price increase will not be settled until late February. Expect suppliers to aggressively pursue the increase to regain the Q4 margin loss. Oil prices and the strength of the export market will be key factors. 60/90 Days: The strength of oil prices and the supplier determination to increase prices in February need to be settled before 60-90 day expectations can be discussed. However, higher oil prices would support higher global prices, as well as lower prices would decrease the global prices.
In the PP market, spot PGP trades $0.405/lb.
The December PGP contract price settled down $0.04/lb with polypropylene prices falling by the same amount.
We have not heard of any nominations for January PGP contract prices, but the spot PGP market is up significantly. We expect PGP contract prices to settle higher, and we expect polypropylene prices to move higher by the same amount.
At least two PP suppliers have increase letters out for January. The letters state their intention to move polypropylene prices with the movement in the PGP price. We do not see any change in margin for January.
Early indications from domestic producers suggest that their order books are strong. Many producers have stated they are sold-out for January.
Likewise, availability of material into the secondary markets has been slim.
Spot PGP is acting in a curious way. Yesterday the market saw spot PGP sell several times at prices of $0.38/lb, $0.40/lb, and $0.405/lb.
There is reason to believe that this current activity has support underneath it. Although EIA inventories remain at very high levels, they did draw this past week. The supply/demand outlook for propylene suggests further draws are coming. A good portion of inventory is dedicated to upcoming outages, and there are several FCC’s with planned outages in the 1st QTR.
Another big factor is propane and butane coming out of the cracker feedslate. This is a big chunk of propylene supply the market is losing.
The potential for a large increase in January PGP contract prices is very real.
RTi PP Outlook and Suggested Action Strategies
30 Days: Polypropylene contract prices will move higher in January along with PGP prices. Spot markets have tightened, limiting opportunities in this segment of the market. 60/90 Days: Cost-push price increases remain a real threat to prices in the 1st QTR.
PVC price increase nominations up $0.04/lb for February are seeing support from escalating ethylene spot prices over the holiday period as well as the December ethylene contract up $0.02/lb.
Although a full implementation of the $0.04/lb February nomination seems unlikely and portion of this could see support from ethylene contract pricing increases in December and January.
Demand is expected to be seasonally lower as colder weather prevails, but offset on the supply side by some planned maintenance in Q1 in the ethylene and PVC supply chain.
Supply & Demand
Supply: Supply is expected strong in the early part of Q1 to provide stock for planned outages.
Demand: Colder weather will dampen demand to the northern hemisphere as slowed construction will impair domestic and export demand. There is some offset in the southern hemisphere, but there’s a competitive landscape in Latin America particularly.
Chlorine: Spot prices have been stable after the mid November boost in spot prices, mainly due to outages in Texas and British Columbia earlier this month which reduced chlorine supply availability.
Ethylene: Spot Ethylene prices increased $0.05/lb. since mid-December due to three ethylene cracker planned outages.
RTi PVC Outlook and Suggested Action Strategies
30 Days: A balanced market under some feedstock pressure from ethylene could see partial implementation of the February nomination, leading to a strategy of stocking up at January prices to get through planned maintenance. 60/90 Days: Increasing ethylene supplies at the end of this period as some maintenance is concluded will help temper feedstock pressure as demand increases in preparation for the construction season. Supply/demand balance and export pricing will dictate price direction as producers look to secure the remainder of the $0.04/lb nomination along with a further nomination.
Increases in the Asian PET markets alongside higher raw material costs push December PET up $0.02/lb.
PX/PTA made a minor increase in mid-December, while MEG has been on a notable climb.
Indorama announced an increase nomination of $0.05/lb for January in response to the recent climb in raw material costs for PET.
The Alpek/PQS deal is virtually complete minus a few minor details, and has concluded as expected: Alpek will own the PQS facility in Brazil. Current expectations are for a slowdown in imports from Brazil, allowing Asian sourced resin to regain share.
WTI crude oil prices have been fluctuating between $52 and $54/bbl since late December. Refinery rates have been in the low 90%’s for the past month.
PX/PTA: The December PX and PTA contracts are estimated to be ~$0.02/lb higher from November, in line with some of the increases seen in the spot markets. News of a full settlement should be available next week.
MEG: Spot pricing in both US and Asia have been climbing, now at a 16-month high. Limited supplies and firmer demand and increases in crude oil pricing have created a bullish market for MEG for the past three months.
RTi PET Outlook and Suggested Action Strategies
30 Days: There is little sign for price weakness on the horizon. Pre-buying ahead of the summer demand season is upcoming, and will reinforce the higher PET pricing. If the MEG supply situation is remedied, which is unlikely in the short term, we could see some easing in pressure. 60/90 Days: Expectations are leaning towards continued PET price climbs for the remainder of the quarter. Crude oil can still make a change here, as US production could ramp up to offset the OPEC production cuts and reduce crude oil pricing. Buy sooner rather than later, as many market participants are anticipating PET price increases.
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