Weekly Market Drivers for the USA
The Feb price increase looks to be accepted market wide without exception.
Secondary market prices increased again this week $0.03-0.05/lb above Jan due to lower inventories.
HDPE commodity-grade blow molding inventories are reported sparse.
The suppliers have announced a $0.06/lb price increase for Mar 1st.
China returns next week from the Lunar New Year holiday. Prices are expected to remain firm due to the expectations of good demand and lower inventories in the spring due to maintenance projects.
Next week’s inventory and export data will be important data to help determine market direction.
Spot Ethylene: Spot ethylene prices remained near $0.36/lb this week due to three ethylene cracker planned outages and PE units running at full production, which is the highest price levels in the past five months during the fall turnarounds.
Naphtha: The price increased again $5/mt to $520/mt; this has been a continual trend over the past seven weeks. The cost to make a pellet from naphtha is near $0.51/lb in 2017. Higher prices will keep PE prices firm in SEA.
RTi PE Outlook and Suggested Action Strategies
30 Days: Continue the same strategy as last week: Buy as needed. The driver for the Feb increase is not demand, and the length of this increase should not be prolonged. 60/90 Days: Global demand, oil, and the North American export market will determine the length of the Feb increase. The new announced increase will extend the Feb increase through Mar. All the drivers listed must be strong, or the price increase will not last past 90 days.
In the PP market, PGP and PP prices will take another price hike for Feb.
PGP settled up $0.10/lb in January to $0.415/lb.
Polypropylene prices moved higher with PGP in Jan and are expected to move penny for penny with PGP in Feb as well.
Spot PGP has stabilized but is still significantly higher than January contract pricing. Current spot prices indicate a $0.08/lb increase is possible for both monomer and polymer. It is still early enough in the month that any significant movement in spot PGP can influence the settlement.
Much of the buying community is limiting purchases of polypropylene in Feb. It is "a buy as needed" approach and is shaping up to look like a market peak this month.
Spot polypropylene prices are up roughly $0.13/lb over the past month. Spot prices, which were heavily discounted in 4Q 2016, are now at more historical spreads of $0.02/lb to $0.04/lb.
The Jan preliminary ACC data reported that domestic production was slightly higher while total sales were slightly lower. The full preliminary ACC data will be reflected in the RTi PP supply/demand report which will be released next week.
PP Export arbitrages remain closed. December exports were 6 million pounds/day; January was less than two million pounds/day.
PP Import arbitrages have opened into the US. We hear there are some deals getting done, but not near the volumes we saw in early 2016.
Spot PGP prices have fluctuated this month; pricing settlements could be affected by turnaround completions and units starting back up.
Spot RGP prices have been relatively stable this week with only mild fluctuations.
EIA propylene inventories on the week fell from 3.82 million/bbl to 3.54 million/bbl.
RTi PP Outlook and Suggested Action Strategies
30 Days: Feb PP prices are expected to move higher by at least $0.05/lb. Buy as needed. Feb looks to be a market peak. 60/90 Days: We expect a market correction to take hold as early as Mar, barring any unplanned outages that could keep monomer supplies tight.
In the PVC market, ethylene spot is up $0.015/lb month to date as contract pricing for Jan rose $0.0125/lb, less than expected. Higher cost global PVC is supporting the Feb nomination in the US.
Implementation of $0.03-0.04/lb of the February PVC nomination is expected on higher ethylene and PVC export prices as supplies tighten from scheduled maintenance.
A reinforcing increase nomination of $0.03/lb for March may come into play based on global demand and the maintenance season for ethylene or PVC as we move into the higher demand construction season.
Supply & Demand
Supply: Supply reduction from maintenance is keeping the market more tightly balanced, but will ultimately yield some capacity expansion in Q2.
Demand: Steady with an expectation of more global interest and stocking against the risk of a Mar/Apr increase.
Chlorine: Spot prices have stabilized after two downstream vinyl chloride monomer facilities experienced issues, which slowed demand for chlorine and dropped pricing by $5/st back in late Jan.
Ethylene: Spot ethylene prices remained near $0.36/lb this week due to three ethylene cracker planned outages and PE units running at full production, which is the highest price levels in the past five months during the fall turnarounds.
RTi PVC Outlook and Suggested Action Strategies
30 Days: A more tightly balanced market will see implementation $0.03-0.04/lb of the February nomination; this suggests a strategy of stocking even at higher Feb prices as a hedge to get through the next 30-60 days before we can get to a flat to declining market. 60/90 Days: Increasing ethylene supplies, at the end of this period as maintenance is concluded, will lower feedstock pressure on PVC as supply improves to meet demand for the construction season. Expect efforts to implement whatever remains of the Feb/Mar nomination if demand (export/construction) outstrips supply recovery from outages.
Bullish factors continue to weigh in on PET pricing. Feb PET expected to be +$0.03/lb.
Spot PET prices have surpassed the 2016 high. Rising prices for Asian PET and increasing raw material costs have been pressuring domestic pricing higher for over three months in a row.
Yearly demand growth has been slowing in China over the past few years, but production keeps improving with new start-ups. This has led to an overcapacity in China, resulting in shutdowns for smaller plants, lowered operating rates, and lower PET pricing with lessened opportunities for exports.
Negative cash flows may result in the closing of the PQS facility in Brazil if the Alpek/PQS transaction does not conclude. Status of the transaction is pending; awaiting approval from shareholders.
OPEC production cuts were met with increased NA shale CO production, keeping crude oil pricing below $54/bbl this week. Refinery rates have been on a 4-week-long ease, starting at 93.6% in early Jan and down to 87.7% in early Feb.
Paraxylene (PX): Mixed xylenes (MX) were seen imported from both Europe and Asia, alleviating some of the domestic supply shortage and easing MX prices.
PTA: In Asia, both PX and PTA made notable jumps in pricing after the end of the Lunar New Year holiday late last week. Expectations are leaning towards further increases into Mar and Apr for domestic and Asia PX/PTA.
MEG: Post-Lunar New Year holiday demand as well as upstream ethylene prices saw some increases this week, pushing both current and forecasted MEG pricing higher.
RTi PET Outlook and Suggested Action Strategies
30 Days: The $0.03/lb increase nomination for Feb is driven by higher feedstocks, higher PET pricing in Asia, and higher demand. The best way to resist this increase would be to quote the RMC change, which is currently expected to be only $0.015/lb higher from Jan. Otherwise, brace for the full $0.03/lb increase to be implemented. 60/90 Days: Increase pressure from feedstocks should slow down heading into Mar and Apr, but they still will be present. Keep an eye on crude oil prices and the supply situation for feedstocks to help determine the forward PET price direction.
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