Weekly Market Drivers for the USA
The CP Chem FM letter cites a power outage in late January in Orange, TX as the cause of the production disruption.
RTi sources report Nova is controlling inventory ahead of a 120-day ethylene turnaround in Canada later this quarter.
Brokers are reporting very strong Q1 sales. However, mid-March sales have suddenly tapered off.
Asia markets settled this week after two weeks of decreases. Buyers are expecting lower prices after naphtha prices declined $50/mt.
Oil prices remained below $50/bbl for the first time since late November.
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. Ethane remains the favored supply; 95% of ethylene is ethane-based. Cost to make ethylene is near $0.11/lb.
Naphtha: Prices declined $50/mt to $450/mt. The cost to make a pellet is now in the mid-$0.40’s/lb. Naphtha continues to mirror the oil price movement.
PE Outlook and Suggested Action Strategies
30 Days: With the expectations of the March increase implemented, buyers should buy only as needed. Without further increases, buying should return to normal patterns and allow inventories to slowly recover. 60/90 Days: Global demand, oil, and the North American export market will determine the length of the February and March increases. The March increase extends the February increase a few more months than expected. Secondary market availability will be the first indicator of any potential change in prices.
In the PP market, PGP not settled; market uncertain.
March PGP settlements remain the main focal point for the polypropylene industry.
The market is quiet as both buyer and sellers await the PGP settlement so they can set their resin prices accordingly.
Refineries and turnarounds continue to come back on-line, but it will take some time to get inventories rebuilt.
Heavy feeds continue to be favored, which promotes propylene production.
Resin producers have indicated they see strong demand for March which should lead to an excellent sales quarter for them.
Secondary market offers spiked this past week, but buyers interest is low. Most processors are consuming inventories and buying as needed, anticipating a fall back in pricing for the next quarter.
Imports are not strong right now, but if there is a significant increase in March resin prices, the arb will open for potential imports of PP resin.
Spot PGP traded $0.025/lb below last week’s activity.
RGP also traded $0.02/lb lower as well.
EIA propylene inventories were up to 2.45 million barrels.
RTi PP Outlook and Suggested Action Strategies
30 Days: March is still waiting on a monomer settlement, 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, lower ethylene, partially offset by higher chlorine, will yield a RMC reduction to PVC of $0.01-0.02/lb in March as opposed to the PVC increase nomination of $0.03/lb.
The $0.03/lb increase nominated for March will see erosion from lower RMC costs. How much depends on further tightening of the supply/demand balance from planned outages and the start of construction season.
Flat to up 2 is in play at this stage in the month, a potential replay of last year (but one month earlier) when we saw 4 in March and 2 in April.
There are some indications of easing on the export side as prices were fractionally lower.
Supply & Demand
Supply: ACC reported production dropped 16% for February year-over-year as demand fell by a similar amount. Calculated inventory fell by 2%, but is 2% higher than a year ago.
Demand: Although a short month, slower demand matched up with lower production, in part due to restocking and pre-buying ahead of the February increase.
Chlorine: Shortened supplies pushed spot chlorine prices another $5/st higher this week, currently assessed at $55/st above the 2017 YTD low in late January.
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 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 eventually pressure PVC prices lower as supply improves to meet demand for the construction season.
PET outlook leaning towards flat as feedstock prices start to ease.
Domestic spot prices were flat to marginally higher from last week, supported by the uptick in demand for the summer bottling season, but held back by lower feedstock prices and PET pricing in Asia.
Global PET capacities are scheduled to increase by nearly 4 million tons (8.8 billion pounds) per year. 1.1 million tons (2.4 billion pounds) are from the US based M&G plant in Corpus Christi, TX, and the remaining capacity is slated for completion in China.
WTI crude oil prices managed to stay below $50/bbl this week, dipping as low as $48/bbl and returning towards $49/bbl by the end of the week. Refinery rates are still in the mid 80%’s.
Paraxylene (PX): Mixed xylene prices have been decreasing over the past few weeks, currently just above the gasoline blending value. Spot PX prices in Asia started to decline due to the lower crude oil prices.
PTA: Trading activity in Asia has turned bearish as the lower crude oil prices have created expectations for PX/PTA prices to continue to decline. Spot PTA in Asia fell nearly $60/mt from the previous week.
MEG: The same bearish expectations affecting PX and PTA are being applied to MEG. Easing ethylene prices and increased imports to Asia also contribute to this outlook.
RTi PET Outlook and Suggested Action Strategies
30 Days: The PET price drivers are a bit of a mixed bag at the moment: Crude oil is below $50/bbl, PET and feeds in Asia are down, and global demand is up. This could easily lead to flat pricing for March, especially for formula buyers. Continue to buy cautiously, and take a “wait-and-see” approach until the forward outlook becomes more clear. 60/90 Days: Raw material cost projections are calling for mostly flat pricing through May, plus or minus a cent. Domestic feedstocks still have the opportunity to continue moving lower as crude oil prices and Asia prices start to take effect. Seasonal demand is up for bottle grade, but because of the diversity of PET uses, it will have lessened impact on the price direction than we have seen in previous years. Monitor the previously mentioned drivers. Any notable change to the current market climate will affect the forward outlook.
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