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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 20/02/2017 (19:55)
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, three simultaneous events occurred since the end of 2016 that contributed to the Feb price increase; historical exports in Dec, processor restocking in early Jan, and the late Jan pre-buy before Feb’s price increase. None of these events are demand driven and will not be present to support the next increase in March.

Market Overview

The Feb price increase looks to be accepted market wide without exception.

Jan exports returned to the three-year average of 20% of production.

Jan inventories only declined 88 million despite the pre-buy and HDPE production rates at a two-year low.

Secondary market prices remain at Jan levels through mid-Feb.

HDPE commodity grade blow molding inventories are reported as being sparse. This appears to be the only resin that is not readily available.

The suppliers have announced a $0.06/lb price increase for Mar 1st.

Feedstocks

Spot Ethylene: Spot ethylene declined this week as maintenance projects are concluding and polyethylene demand and production rates were lower than expected in Jan.

Naphtha: Prices were steady this week near $520/mt, ending the upward trend over the past eight 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: The Mar increase seems highly unlikely. However, the long month of Mar may present the suppliers with an opportunity to implement an increase. The prices will not decrease in Mar and processors should consider a prebuy strategy. 60/90 Days: Global demand, oil, and the North American export market will determine the length of the Feb increase. The newly 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 to take another price hike for Feb.

Market Overview

PGP settled up $0.10/lb in Jan to $0.415/lb.

Polypropylene prices moved higher with PGP in Jan and are expected to move penny for penny with PGP in Feb.

The implied PGP Feb contract price is $0.485/lb based on current spot prices of $0.46/lb. This would be an increase of $0.07/lb.

The market has been quiet overall. We see many buyers sitting on the sidelines in Feb.

Sellers are confirming this, noting very little activity relative to normal business levels.

Higher prices have hurt producers’ ability to export material. Jan volumes were down 73% from Dec. Volumes are likely to shrink again this month.

Dec imports were down to 60 million/lb. However, the import arbitrage is now wide open with many buyers contemplating opportunities.

Propylene

Spot PGP traded $0.46/lb this morning.

Spot RGP traded $0.355/lb, also this morning.

EIA propylene inventories fell from 3.54 million/bbl to 3.13 million/bbl.

Refinery run rates have dropped to 85.4% (US) and 84.9% (PADD3).

RTi PP Outlook and Suggested Action Strategies

30 Days: Feb PP prices are expected to move higher by at least $0.05/lb and as much as $0.08/lb. Buy as needed. Prices are nearing a peak. 60/90 Days: We expect a market correction to take hold as early as Mar or Apr. Unplanned outages could extend the time for a correction to take hold.

In the PVC market, ethylene spot corrected this week as supplies improved (down $0.06/lb), a net decrease $0.02/lb in Feb. Higher PVC export pricing and a Jan inventory draw are helping to support the domestic increase nomination.

Market Overview

Implementation of $0.03-0.04/lb of the February PVC nomination is expected due to export pricing now above $0.40/lb, and an inventory draw due to domestic stocking before the Feb increase.

The influence of the reinforcing increase nomination of $0.03/lb for March is seen as weakening based on improving ethylene pricing and reductions in demand from pre-buying ahead of the increase.

Supply & Demand

Supply: Although production was up 2% in Jan (ACC), 5% above the 2016 average, domestic demand overtook production to reduce calculated inventories by 7%.

Demand: Export demand fell 10%, but domestic demand soared 27% (ACC), 8% above the 2016 average on restocking and pre-buying of inventories ahead of the Feb increase nomination.

Feedstocks

Chlorine: Demand has improved for both chlorine and downstream PVC. Supplies have been deemed tight. The combination of weaker supplies and stronger demand pushed chlorine prices ~$35/st higher from last week.

Ethylene: Spot ethylene declined this week as maintenance projects are concluding and polyethylene demand and production rates were lower than expected in Jan.

RTi PVC Outlook and Suggested Action Strategies

30 Days: A more tightly balanced market will see implementation $0.03-0.04/lb of the Feb nomination; suggesting a strategy of stocking even at higher Feb prices as a hedge to get through the next 30-60 days before we work our way to a flat market, which could come as soon as Mar, dependent on improving supplies. 60/90 Days: Increasing ethylene & PVC supplies through this period, as maintenance is concluded, will lower price pressure on PVC as supply improves to meet demand for the construction season. Expect efforts to implement the remains of the Feb/Mar nomination in Q2 if demand (export/construction) outstrips supply recovery from outages.

The domestic spot PET price climb has halted after absorbing most of the impact of rising raw material costs from the past few months.

Market Overview

Feb PET contracts are expected to rise $0.02-0.03/lb from Jan. The $0.03/lb increase nomination is still at play. Formula raw material costs show a $0.01-0.02/lb increase based on Feb feedstock contract estimations.

Market participants in Latin America are paying a lot of attention to the Alpek/PQS transaction (which is still on hold), as well as potential new tax laws that if implemented, could influence trade activity between the US and Mexico.

CO supplies hit an all-time high at 518.1 million barrels. CO analysts had projected a ~4-million-barrel gain, not ten. These results could support a price drop in the coming days.

WTI crude oil stayed below $54/bbl this week. Refinery rates moved 2.3% lower, now in the mid 80%’s.

Feedstocks

Paraxylene (PX): Mixed xylene (MX) imports are continuing to be seen from both Europe and Asia. Imports are improving domestic supply availability and keeping pricing muted amidst upstream increase pressure. Low-cost MX is helping to slow the rise in PX, with PX contracts now expected to be stable from Feb to Mar.

PTA: While decent supply availability for MX is helping to keep PX stable, spot PTA in Asia is rising due to tighter supplies and decent demand. If PX settles near expectations (around $0.46/lb), the PTA formula contract price would be at $0.4561/lb.

MEG: A Chinese trader was seen selling a large portion of their MEG inventories at a 6-7% profit. This was likely the result of pre-buying during the low demand climate throughout the Lunar New Year holiday while prices were ~$50/mt lower than they were last week. The result was lower MEG pricing for the week as the market absorbs the extra supply, but prices are still expected to climb over the next few months.

RTi PET Outlook and Suggested Action Strategies

30 Days: Continue to expect an increase for Feb. As soon as feedstock contracts settle, we will have a better idea on the formula-based contract pricing, which would help determine the market price change. Expectations are still hovering between +$0.015/lb and +$0.03/lb, depending on the contract structure. 60/90 Days: The increase pressure from feedstocks and Asian Markets 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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