Weekly Market Drivers for the USA
The export market continued to be strong well into January. Availability is limited; offers are shipped promptly.
Post Chinese New Year activity will be a key driver to watch. Oil pricing will be one of the determining factors for buying decisions. Higher prices could stimulate export and further reduce inventories.
OPECs biggest oil producer Saudi Arabia lowered production rates to a two-year low, further strengthening oil price this week.
Off grade PE is now selling above $0.50/lb, up $0.02-$0.05/lb., while the November pricing was in the mid-$0.40’s.
Spot Ethylene: Spot Ethylene prices remained near $0.31/lb. due to three ethylene cracker planned outages.
Naphtha: The price exceeded $500/MT, $50 higher than November. Feedstock prices tracked with naphtha increase. 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: Suppliers are very bullish that they will achieve the February increase. The price increase will not be settled until late February. Oil prices and the strength of the export market will be key factors. Buyers should manage inventory with the expectation of a price increase. 60/90 Days: The combination of supplier determination to increase February pricing and the strength of crude oil prices needs to be settled before 60-90 day expectations can be discussed. However, in the long term, higher oil prices would support increased global prices, as well as lower prices would decrease the global prices.
In the PP market, propylene monomer producers nominate up $0.10/lb to $0.12/lb for JAN PGP contracts.
Last week’s PGP rally has held up over the past week. Other than the nominations, we have not heard of any serious PGP settlement talk. Our expectations are that January will see a large increase in PGP contract prices, possibly reaching double digits.
Several PP producers have issued letters stating their intention to move PP prices with the change in PGP.
PP inventories have declined 280 million/lb over the past two months. Days of Supply are down to 30.5 days. What little material is available in the secondary markets now carries a premium to contract prices.
PP exports reached 188 million/lb in December. However, the PGP increase has quickly closed the arbitrage.
Likewise, imports are getting a second look from qualified buyers.
Spot PGP traded at $0.45/lb early this Friday morning.
Spot RGP is valued at $0.225/lb with recent bids coming in at $0.22/lb.
EIA propylene inventories dropped from 4.64 million/bbl to 4.45 million/bbl.
One factor is that propane and butane have priced out of the cracker feed slate. Propylene yields will take a big hit.
Another factor is a heavy refinery TAR schedule. We have counted 12 planned FCC outages throughout Q 1.
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.
Despite ethylene spot price escalation, Jan PVC raw material costs are forecast up less than $0.02/lb over Nov cost when the Oct PVC price increase was reversed.
Full implementation of the $0.04/lb February nomination seems unlikely, with flat to up $0.02/lb thought to be in play.
The wild card is the degree of supply constriction from planned outages versus low season demand in the latter half of the quarter.
Supply & Demand
Supply: Supply will be robust in the early part of Q1 to provide stock for planned outages.
Demand: Wet, cold and snowy weather will help to dampen demand as producers weather an uptick in ethylene and plant outages. Export pricing is easing lower as port logistics are limiting volume along with stocking for outages.
Chlorine: Spot prices were stable after a recent boost in spot prices, mainly due to outages in Texas and British Columbia back in November which reduced chlorine supply availability.
Ethylene: Spot Ethylene prices remained near $0.31/lb. due to three ethylene cracker planned outages.
RTi PVC Outlook and Suggested Action St rategies
30 Days: A balanced market under some feedstock pressure from ethylene has risk of partial implementation of the February nomination, leading to a strategy of stocking up at January prices to get through the next 30- 60 days. 60/90 Days: Increasing ethylene supplies, as some maintenance is concluded, will help temper feedstock pressure as demand increases in preparation for the construction season. Export pricing will influence the domestic price direction as producers look to secure the remainder of the February nomination.
In the PET market, bullish feedstocks and higher Asian pricing push January price increase expectations as much as $0.02-0.05/lb higher from December.
There have been a number of producers announcing a $0.05/lb increase for January, while formula based pricing may only see plus $0.02/lb. The market-based pricing used by producers takes into consideration the market conditions in Asia as well as the uptick in pre-buying for the summer bottling season.
The Alpek/PQS deal is now awaiting the final vote from their shareholders and approval from Brazil’s Administrative Council for Economic Defense, which is expected to be concluded by the end of the month.
WTI crude oil prices started the week near $54/bbl, then troughed near $50/bbl, and have since returned towards $53/bbl by the end of the week. Refinery rates rose to 93.6%.
PX: December PX settled $0.015/lb higher from November, at $0.42/lb. January is estimated to move up another $0.015/lb. This is mainly in reaction to upstream mixed xylene prices which made some notable gains in early December.
PTA: The formula contract price for December rose to $0.4284/lb based on the PX settlement. Recent spot prices in Asia have been stable for the past couple of weeks.
MEG: MEG production margins have been improving in Asia as MEG prices moved higher in response to increases seen in crude oil from the start of January, but ethylene prices have since been soft. Price expectations are bullish for the remainder of Q1 2017.
RTi PET Outlook and Suggested Action Strategies
30 Days: There is a lot of support for the proposed $0.05/lb January increase announcement. The best way to push back is to quote the change in formula pricing, which was up only $0.02/lb. 60/90 Days: Expectations are leaning towards continued PET price climbs for the remainder of the quarter. Even though crude oil has yet to stabilize, factors continue to reinforce upward pressure on PET pricing.
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