Weekly Market Drivers for the USA
A well-known industry reporting service received some attention this week after reporting the March increase is not expected to be achieved. At least one resin supplier responded by splitting the increase $0.06.
Resin suppliers are reporting very low inventory. One HDPE suppliers cited inventory levels below 10 days.
The CP Chem FM letter cites a power outage in late January in Orange, TX as the cause of the production disruption. RTi clients have been receiving bulk trucks to cover resin needs.
EIA forecasts Brent crude oil prices to average $55/bbl in 2017 and $57/bbl in 2018. West Texas Intermediate (WTI) crude oil prices are expected to average about $1/bbl less than Brent prices in the forecast. NYMEX contract values for May 2017 delivery traded during the five-day period ending March 2, suggesting that a range of $46/bbl to $63/bbl encompasses the market expectation for WTI prices in May 2017 at the 95% confidence level. Source: www.eia.gov
Spot Ethylene: An outage at Williams continues to keep the market firm. Buyers continue to be bearish in the spot market. Prices are expected to decline in April and May as the new capacity from Oxy Chem started this week. Ethane remains the favored supply; 95% of ethylene is ethane-based. Cost to make ethylene is near $0.11/lb.
Naphtha: Prices steadied near $450/mt after falling more than $60/mt since February. 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 or without the implementation of an April potential $0.03/lb increase, 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. If implemented, the March increase will extend 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, March PGP settles up $0.04/lb to $0.52/lb.
Despite the higher settlement, spot PGP is showing signs of weakness. Spot PGP is down by about $0.045/lb from its high in early March. Spot RGP has done even more work, down almost $0.10/lb from its recent high.
Propylene supply is starting to improve. The market will need demand to improve along with it. Prices must come down.
With PGP settled for March, polypropylene contract prices will also move up $0.04/lb, penny for penny. March will be the market peak.
April PGP and PP prices are expected to drop. If history repeats itself, the drop could be significant.
Heavy feeds at the cracker remain favored, planned outages are wrapping up, and metathesis is heavily incentivized to run; these factors are supportive of improved monomer supply.
Despite high prices, domestic PP demand has held up well. Arbitrages are open for imported PP, but there is no indication that buyers have turned to imports.
Spot PGP is valued at $0.4925/lb.
Spot RGP is valued at $0.365/lb.
EIA propylene inventories were stable at 2.45 million barrels.
Refinery OP rates were up to 87.4% (US) and 89.0% (PADD3).
RTi PP Outlook and Suggested Action Strategies
30 Days: March contract prices will be up. Buy only as needed. Lower prices are on the horizon. Spot PP prices are already seeing some discounting. 60/90 Days: We expect the market to see a market correction in April and May. Double digit decreases are expected as cost-push pressures get resolved.
In the PVC market, lower ethylene and ethane promise a significant reduction in the March ethylene contract, leading to PVC RMC reductions of $0.015-0.02/lb. Combined with lower export pricing, we do not expect full implementation of the March $0.03/lb nomination.
Global demand, RMC, and pricing appears to be easing, dropping export pricing below $0.41/lb.
Up $0.01-0.02/lb is in play at this stage as a major supplier has started maintenance at a Texas plant.
Construction demand will see some disruption in the NE from the recent snow storm, as processors work down inventories purchased ahead of current increases.
Q2 is expected to see improved supplies and lower RMC moving the market flat to down.
Supply & Demand
Supply: Planned maintenance has started at one major producer’s Texas plant for the next couple of weeks.
Demand: Housing starts in February were stronger than expected with increases led by single family construction, although new building permits disappointed.
Chlorine: Chlorine spot prices remained at $265/st this week after absorbing increases since the start of the year due to tightened supplies.
Ethylene: The March monthly average spot price is over $0.06/lb lower than February and falling. Cracker restarts and lower CO prices are the contributing factors. The Williams Geismar facility had an unplanned shutdown Sunday when a raccoon tripped all their transformers, causing a major power outage. The company doesn’t anticipate a prolonged shutdown and expects only minimal impact to customers.
RTi PVC Outlook and Suggested Action Strategies
30 Days: The March increase will come in at partial value with the April nomination being a non-starter. Buy as needed as you look for lower prices in Q2 from improved operations along the entire supply chain. 60/90 Days: Added ethylene capacity & full PVC operations will pressure PVC prices lower as supply improves to meet demand for the construction season.
PET raw materials and contract pricing leaning toward slightly lower for March.
Market fundamentals were mostly unchanged on the week, keeping domestic assessments flat.
Sources are indicating that March PET contracts could be nearly $0.01/lb lower from February.
PET operating rates are being pegged in the mid 80%’s, which is seemingly enough to satisfy the uptick in demand for the summer bottling season (peak time being March/April).
WTI crude oil prices stayed between $47/bbl and $49/bbl this week. Refinery rates moved 2.3% higher from the previous week, now at around 87.4%.
Paraxylene (PX): An initial contract settlement for March PX was heard at $0.45/lb, which is down $0.0075/lb from February. Upstream mixed xylene prices are stable at near-gasolineblending levels.
PTA: Spot pricing in Asia were muted this week. There are some expectations that China may cut back on PTA production due to reduced margins and reduced demand.
MEG: Strong supplies, full inventories, and crude oil staying below the $50/bbl mark are driving MEG prices lower. However, there are some expectations that the prices are at or reaching a floor.
RTi PET Outlook and Suggested Action Strategies
30 Days: The sum of all the PET price drivers are currently favoring the low side for March/April: crude oil is below $50/bbl, MX/PX/PTA are all down, and MEG supplies have improved. The only prominent increase driver is the higher seasonal demand, which has had lessened impact on the PET price direction compared to years past. Buy as needed, or wait for potentially lower April pricing. 60/90 Days: The “plus or minus 1 cent” outlook is still valid. Market participants are expecting stability heading into Q2, and the drivers are there to support it. Once we pass the peak demand season, market fundamentals could turn bearish. To counter that, raw materials could easily pick back up if crude oil surpasses the $50/bbl mark, lending to the expectations for muted PET pricing direction. Continue with the 30-day strategy; buy as needed or wait for April.
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