Weekly Market Drivers for the USA
Low availability for HDPE injection grade is now very severe. HDPE injection molders are struggling to meet resin needs. Several plant outages and an upcoming 80-day Nova turnaround will further contribute to this problem.
Suppliers are not responding to the expectations of a June decrease. Any real decreases have not materialized yet.
Spot off-grade deals are lower than May. However, large quantities of any resins have not appeared in the secondary markets.
Over the past 30 days, oil prices have fallen 16%, and natural gas prices have fallen over 13%. Oil remained below $45/bbl this week for the second consecutive week.
Spot ethylene stabilized this week near $0.24/lb, down $0.06/lb from the April peak.
There are reports of Braskem HDPE bags being delivered to the East Coast near $0.51/lb.
Expectations of stronger export activity in June than May is not taking place.
Ethylene: Spot prices remained below $0.25/lb this week for the first time since early December.
Naphtha: Prices declined again this week another $10/mt to $410/mt, in sync with lower oil prices. Cost to produce the naphtha pellet is near $0.44/lb.
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. HDPE injection resin buyers should cover needs early and communicate needs with the supplier. 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.
Braskem to proceed with a world-scale PP plant in La Porte, TX.
Engineering is underway for a 1-billion-pound polypropylene plant that will produce homopolymer, random copolymer, impact copolymer, and TPO’s. Braskem has communicated that construction would be complete by Q1 2020.
Spot PGP transacted at $0.3925/lb Thursday afternoon. Using this to figure an implied contract price for July puts the estimate at $0.415/lb, or up $0.03/lb from the June settlement of $0.385/lb.
The monomer market has firmed up with the Dow PDH going down for maintenance. Dow’s outage is expected to continue for at least another three weeks.
FHR has reportedly applied heat to their PDH unit, indicating that start-up is in process.
We expect polypropylene prices to move with PGP for July.
PP demand remains strong through June. Producers have been rumored to be considering magrin expansion play.
Secondary market availability is snug with prices close to contract prices for most grades. Copolymers are even tighter with certain grades unavailable.
Spot PGP last traded at $0.3925/lb.
Spot RGP is valued at $0.25/lb, up slightly on the week.
Refineries are running hard with rates at 94.0% (US) and 95.8% (PADD3).
EIA Propylene inventories were stable at 2.80 million/bbl.
RTi PP Outlook and Suggested Action Strategies
30 Days: June prices are rolling flat. July prices look to be up by about $0.03/lb based on projections of increasing PGP prices. 60/90 Days: The market remains slightly bullish from the recent PDH outages. Both units should be returning to operation within the next few weeks. We expect prices to be flat to down after July.
PS imports from multiple regions are wreaking havoc in the NA market.
PS imported resins are growing in frequency and volume from Latin America and Asia, with prices that are “under-cutting” the domestic producers.
Processors are making a statement that they are not willing to continue to pay higher prices for PS resins.
Not only are imports supplanting domestic volumes, but a switch to alternative resin families by processors are cutting deep into the big 3’s PS market shares.
One major US supplier has decided to reciprocate the intrusion by entering the market of the imported resin producer, and undercut their prices to steal market shares in their back yard.
Benzene (BZ): Spot prices moved down in conjunction with CO prices. The forward bids/offers now range from $2.45- 2.58/gal. Imports remain limited.
Styrene Monomer (SM): All eyes are on Asia. As demand in Asia increases, so do NA exports and prices. Domestic prices have slowly been creeping upwards despite the backward direction of benzene; a scenario which could last through July.
Butadiene (BD): After weeks of price stability, the weekly spot price had a hefty decline. Weak rubber demand, ample supplies, and cascading prices in Asia are all contributors to the BD price freefall. July contract prices are already being discussed in the range of down $0.02/lb to $0.20/lb.
RTi PS Outlook and Suggested Action Strategies
30 Days: Flat prices could last into July, so continue to buy JIT. 60/90 Days: Producers may attempt to raise prices in August, as in times past, but unless the BZ price direction have a dramatic upward shift, an increase will be difficult. Do not be in a hurry to replace inventory.
Spot ethylene pricing rebounded $0.0075/lb this week on news of a cracker process upset. Export PVC pricing was fractionally lower as July Asian pricing was nominated flat.
RMC for PVC will be lower in June, at or below April levels as ethylene decreases are more than offsetting expected chlorine contract increases as chlor-alkali supply shows improvement.
Falling oil prices continue to support lower naphtha and ethylene pricing globally.
Domestic PVC prices are trending flat in June as pressure for reductions are gradually building for Q3 and dependent on continued strengthening of supply and demand within current ranges both domestically and exports to a global market with falling feedstock cost.
Supply & Demand
Supply: June output is expected higher than May with a weather eye on Tropical Strom Cindy which is expected to have more of an impact in terms of rain totals in Louisiana than Texas.
Demand: The bulk of June has been good for construction with the past week seeing some challenges in terms of heat in the SW and Tropical Storm Cindy in the SSE.
Chlorine: Spot pricing was flat this week, sitting at near historic highs due to tightened supplies and strong summer demand.
Ethylene: Spot prices were down again this week, staying below $0.25/lb for the first time since early December.
RTi 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 pressure from oil and ethylene globally as supplies improve. 60/90 Days: Supplies will continue at higher levels in Q3 for ethylene and PVC with chlorine output recovering from maintenance. The supply/demand balance will determine the degree to which lower pricing is realized in Q3. Buy as needed.
US MEG contracts for June settling higher. PET raw material costs now potentially support a price increase for June.
The lower PX/PTA contract settlements seem to be outweighed by increases in MEG, pushing RMC estimates as much as $0.005/lb higher from May.
Higher PET prices in Asia, as well as reportedly stronger domestic demand, reinforce the increasingly bullish outlook for PET contracts for June.
Spot PET prices are now $0.02-0.03/lb above the 2017 low seen in May.
WTI crude oil prices have been staying between $44/bbl and $43/bbl this week.
Paraxylene (PX): June PX contracts settled $0.0125/lb lower, at $0.4075/lb. Gasoline prices are moving lower due to lower crude oil and building inventories, despite being amidst a historically strong demand season.
PTA: June PX at $0.4075/lb puts June PTA at $0.4214/lb. BP recently completed capacity expansion (+10%) at their Charleston, South Carolina PTA facility.
MEG: MEG inventories in China has started to decline as demand returned, causing prices to inch back up after several weeks of bearishness. A few major US producers have announced price increases for July MEG by $0.02-0.04/lb.
RTi PET Outlook and Suggested Action Strategies 30 Days:
Higher MEG contract prices have shifted the balance in favor of a PET price increase for June. Buy sooner rather than later to capitalize on some of the lowest PET prices in 2017 at May pricing levels. 60/90 Days: Crude oil prices continue to be kind, but it may not be enough. It is reasonable to expect the bullishness to continue through the summer season, from both the raw material front, and the market fundamentals front.
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