Weekly Market Drivers for the USA
The $0.06/lb March increase is pending. Several plastic publications have printed expectations of the increase being successfully implemented. Suppliers view this as support and will try to hold the increase as long as possible. This is the only support of the pending increase.
The February inventory and export data available next week will be essential to help determine the direction of the market and potential increase.
Brokers are refusing suppliers’ new higher-priced off-grade offers.
Spot Ethylene: All the planned ethylene maintenance projects have been concluded. New additional supply is scheduled to begin production in April/May. Buyers are very bearish in the spot market. Prices are expected to decline further as this new capacity starts in April/May.
Naphtha: Prices declined $10/mt to $500/mt. The cost to make a pellet is now just below $0.50/lb. Naphtha continues to mirror the oil price movement.
PE Outlook and Suggested Action Strategies
30 Days: Resin strategies will be reliant on the supplier actions and market data for the first half of March. If this increase is implemented, buy as needed. If the increase is delayed, the second half of March data will determine end-of-the-month resin strategies. 60/90 Days: Global demand, oil, and the North American export market will determine the length of the February or March increase. The newly announced increase extends February’s increase through March and April. All the drivers listed must be strong, or the February price increase may not last past 90 days.
Polypropylene inventories build by 88 million pounds.
Coming out of February where contract PGP settled at $0.48/lb, polypropylene buyers and sellers speculate on where the March contract will settle. Opinions vary widely, ranging from up $0.03/lb to up $0.07/lb. Based on today’s spot PGP value and adding a typical spread for contract prices, it could move up by $0.07/lb.
As we have stated before, a lot can still happen. We still think a market correction is imminent, but it may not come in time to have a favorable impact on the March settlement.
Refineries continue to come back on-line. The propylene rich PADD3 region was up to 88.8%. Heavy feeds remain advantaged over ethane.
Whatever happens to PGP this month, polypropylene prices will move in lock-step.
January import numbers were published this week. Import volumes were ~48 million pounds which is consistent with 2015 levels prior to the import surge of 2016.
This supports our notion that domestic producers were successful in winning back market share heading into 2017.
It might also explain the February PP demand numbers reported by the ACC which held up rather well. January/February demand combined is on a 4.0% growth rate.
Spot PGP was done for March at $0.525/lb and April at $0.53/lb.
Spot RGP traded at $0.45/lb and most recently at $0.44/lb.
EIA propylene inventories were down to 2.37 million/bbl.
RTi PP Outlook and Suggested Action Strategies
30 Days: March is still a tough call, but current indicators point to an increase. Buy as needed. We anticipate a market correction will be in force by April. 60/90 Days: We expect a correction to be in process by this time. Price relief will arrive, and converters will be much better positioned for the summer seasons.
In the PVC market, ethylene spot continued lower, down a total of $0.12/lb over 4 weeks, which will lead to a significant raw material cost reduction for PVC in March.
The $0.03/lb increase nominated for March will see erosion from lower costs. How much depends on further tightening of the supply/demand balance. Flat to up 2 is in play at this early stage in the month.
The supply/demand balance will be influenced by strong reported demand, leading to the construction season and some planned maintenance later this month, but offset by increased capacity and opposition to higher prices in overseas markets as the US$ strengthens with a rate increase this month.
Unless we have an unplanned supply failure, the reinforcing $0.03/lb for April will not get traction.
Supply & Demand
Supply: Two scheduled maintenance events will take place later this month, with duration and impact expected to be relatively minor, but not helpful during the run-up to construction season.
Demand: Construction growth is expected with concerns expressed from various quarters regarding availability of land to build and labor.
Chlorine: Spot chlorine prices moved $15/st last week, supported by bullish expectations and limited supply availability.
Ethylene: All the planned ethylene maintenance projects have been concluded. New additional supply is scheduled to begin production in April/May. Buyers are very bearish in the spot market. Prices are expected to decline further as this new capacity starts in April/May.
RTi PVC Outlook and Suggested Action Strategies
30 Days: PVC price nominations will need more support from outages and demand, to offset lower costs in March allowing for erosion and potential push-out of the March increase nomination. The April nomination is designed to reinforce the March nomination and encourage pre-buying demand just in case. 60/90 Days: Increasing ethylene & PVC supplies, after maintenance is concluded, will reverse price pressure on PVC as supply improves to meet demand for the construction season. Expect efforts to implement a portion of the March nomination in Q2 if demand (export/construction) outstrips supply recovery from outages.
Domestic spot PET prices are flat, while global prices continue to trek higher.
Global spot prices have been climbing higher in response to tighter supplies from an upstream force majeure (Europe) amid rising demand for the summer bottling season (Global).
There are expectations that domestic spot pricing will soon rise to meet the global price direction.
WTI crude oil prices dipped below the $50/bbl mark for the first time since early December 2016, with most recent prices hovering around $49/bbl. Refinery rates were mostly unchanged from the previous week.
Paraxylene (PX): Upstream mixed xylene blending values continued to weaken this week. The Asian Contract Price for March PX settled $5/mt higher, at $905/mt.
PTA: The current outlook calls for March PX/PTA to be flat-to-$0.01/lb higher. Spot markets in Asia have been mostly muted for the past few weeks. A PTA plant in Belgium (~35% of European PTA capacity) has been slowly returning to full operations after declaring force majeure, which has reduced PTA and downstream PET supply availability.
MEG: MEG sell-offs in China continued this week after port authorities threatened fees for any material that is still at the port by the end of next week. This action prompted traders to deplete their inventories to avoid the fee, causing the recent declines in MEG pricing that we have seen over the past few weeks.
RTi PET Outlook and Suggested Action Strategies
30 Days: Raw material costs are anticipated to be flat, or even up $0.01/lb on the high side. But from a market perspective, we are seeing global PET prices and demand start to rise, with the peak demand appearing in March/April. Buy cautiously. 60/90 Days: The forward price direction still has mixed expectations. MEG is a bit of a mess right now with instability in the Asian markets, PX/PTA is expected to be on a slow and steady rise heading into April/May, and demand for PET is picking up. Monitor both the Asian PET markets and RMC; they tend to have a greater pull on PET prices than the summer demand season. Buy as needed until the PET outlook becomes more clear.
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