Weekly Market Drivers for the USA
Every global polyethylene indicator is trending downward. The polyethylene market has not responded in June to these trends. The question being asked by processors is, “Can the resin suppliers hold off further decreases in June?”
Oil prices remained below $45/bbl this week.
Spot ethylene prices declined further this week.
Inventories grew 400 million pounds in the last two months with lower operating rates.
Spot HDPE resins in Europe are at a three-year low.
The secondary market offers continue to move lower. LLDPE off grade is down $0.03/lb from May.
Expectations of export activity to be stronger in June than May is not taking place.
Spot prices were down again this week, staying below $0.25/lb for the first time since early December.
Naphtha: Prices declined again this week another $20/mt to $420/mt, in line with lower oil prices. Global ethylene prices also decreased this week.
PE Outlook and Suggested Action Strategies
30 Days: Same actions as last week. Higher inventories and good production will apply downward price pressure this summer. Buy as needed and aggressively in the secondary markets. When possible, delay purchases into the next month. 60/90 Days: It is reasonable to expect $0.03-0.05/lb price erosion in the next 60-90 days if oil remains below $45/bbl. There is nothing present that could drive an increase outside a major disruption.
Dow PDH unit goes down as June contract prices settle.
Contract PGP for June settled flat this week at $0.385/lb.
PP buyers are fortunate for the flat settlement. Spot prices actually indicated an increase of about a penny, and subsequent to the settlement, Dow’s PDH unit went down unexpectedly.
Current estimates for the Dow PDH outage is 30 days.
FHR’s restart of their PDH unit is delayed at least another week due to a compressor issue.
Likewise, market sentiment for PGP & PP is shifting towards bullish.
PP demand continues to get reported as strong in June. Producers claim to be sold out.
Secondary market availability is tightening and spot prices are up.
Talk has also surfaced that PP producers will try to increase margins soon if demand stays strong.
Spot PGP last traded at $0.3775/lb.
Spot RGP is valued at $0.245/lb.
EIA inventories were stable on the week.
Lower oil prices have butane advantaged over ethane and propane is at parity. C5’s are also within striking distance of working back into the slate.
PP Outlook and Suggested Action Strategies
30 Days: June prices are rolling flat. Demand has rebounded and monomer has suffered a couple of setbacks. June price points earn a buy recommendation. 60/90 Days: Near-term sentiment is bullish with July now looking like it could move higher. If PDH units return on-time or heavy feeds gain momentum, market goes from bullish to neutral.
Except for domestic sales and days of inventory, the PS preliminary inventory data reflects gains across all aspects of PS production.
May monthly preliminary ACC PS data: o Domestic Sales: -7%
Days of inventory: -1.8 days o Total Production: +6.7
Demand Rate: +8.86%
Operating rates: +5.4% o Exports: +25%
Benzene (BZ): BZ spot prices are reactive to CO price fluctuations. Prices are currently moving upwards, albeit at a slow pace. If spot prices remain at their current price points, it could trigger a downward settlement for July contract prices.
Styrene Monomer (SM): An open export arbitrage to Asia, coupled with rising prices in Asia and Europe, are pulling NA spot prices upwards. The NA market supply/demand is balanced, but this will be challenged if the export arbitrage is sustained for a significant amount of time. The May CP settled down $0.015/lb ($0.63/lb-0.8375/lb).
Butadiene (BD): Spot prices have been static for the past several weeks. July contract prices are already being discussed lower than current price points. NA supply is ample while demand is lackluster.
PS Outlook and Suggested Action Strategies
30 Days: All producers are aligned with flat prices for June. Buy JIT. There is little risk in a price escalation. 60/90 Days: Unless demand and feedstock prices have dramatic swings in either direction, the PS market could see flat prices into Q3.
Spot ethylene pricing fell another $0.01/lb this week, now averaging down $0.04/lb in June as May PVC production increased to yield an inventory build.
RMC for PVC is expected lower in June, at or below April levels as ethylene decreases are more than offsetting chlorine increases as maintenance continues upstream in chlor-alkali production.
Export pricing has been stable this month with some indication of increase efforts for July from Asia, but could be prevented by lower ethylene costs due to lower oil.
Domestic PVC prices are trending flat in June as pressure for reductions are gradually building for Q3 and dependent on continuing strength of production despite chlor-alkali maintenance and demand within current ranges.
Supply & Demand
Supply: May PVC operating rates increased by 11% (ACC) with YTD output matching that of 2016, railing calculated PVC inventory by 12% to 5% above the 2016 average.
Demand: Domestic demand increased 10% (ACC) as exports remained at lower levels for May.
Chlorine: Supply tightness due to maintenance continued this week while demand remained strong, keeping market fundamentals bullish and pushing pricing up $5/st.
Ethylene: Spot prices were down again this week, staying below $0.25/lb for the first time since early December.
PVC Outlook and Suggested Action Strategies
30 Days: Continue to buy as needed, pushing orders at end-of-month into the next month to take advantage of downward movement as pressure builds from increasing production and lower feedstock pricing. 60/90 Days: Supplies will continue to improve in Q3 for ethylene and PVC with chlorine maintenance ending and output recovering. The supply/demand balance will determine the degree to which lower pricing is realized in Q3. Buy as needed.
June PET price expectations are split.
PIA/DEG supply issues alongside rising PET prices in Asia support a PET price increase, while declining crude oil and potentially lower feedstock contracts support a PET price decrease.
Spot PET prices were seen moving $0.01-0.02/lb higher from last week in response to rising PET prices in Asia.
WTI crude oil prices stayed near the mid $40’s/bbl this week, ending the week just below $45/bbl. Refinery rates were still seen in the mid 90%’s.
Paraxylene (PX): Crude oil prices near $45/bbl continue to pressure gasoline prices lower, despite being amidst the summer driving season, where typically we would see much higher gasoline prices. Mixed xylenes and PX both were flat to marginally lower from last week as a result.
PTA: Spot PTA pricing in Asia saw a minor increase due to an outage. US PX/PTA outlooks are still slightly bullish with the expectation of higher gasoline prices and stronger demand through the summer season.
MEG: MEG inventories in China has started to decline as demand returned, causing prices to inch back up after several weeks of bearishness.
PET Outlook and Suggested Action Strategies
30 Days: The mixed expectations for the June price direction has created uncertainty in the market. Prices could move anywhere between up $0.03/lb, or down as much as $0.01/lb. Buy cautiously until the price direction becomes more clear. 60/90 Days: Forward raw material cost estimates show a slight increase in the July/August timeframe. Although crude oil prices are staying below the $50/bbl mark, other price increase drivers are at play and could easily push PET prices up $0.01/lb over the next couple of months.
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