Weekly Market Drivers for the USA
by ChemOrbis Editorial Team - content@chemorbis.com
PE Drivers
The Formosa outage and several other minor outages have limited the incremental pounds available in July that are needed to pressure any downward price movement. Several suppliers continue to pursue a $0.03/lb increase in July.
Market Overview
As of today, it is not fully defined which of the suppliers are delaying the July increase to August.
Nova and Westlake announced a new $0.03/lb price increase effective August 1st on all polyethylene grades. All of Westlake’s previously announced and unimplemented increases have been rescinded.
Formosa Plastics force majeure remains in effect. There are supply limits on polyethylene resins after a power outage on June 25 at its production site in Point Comfort, Texas.
HDPE injection molding remains very tight. Several plant outages and an upcoming 80-day Nova turnaround will further contribute to this problem.
July exports started very slowly. Lower availability and higher prices kept traders from participating.
Secondary market activity is very slow after initial July price increase attempts are being rejected.
Resin markets are still not balanced due to the supply disruptions of the first half of 2017.
Feedstocks
Ethylene: Spot prices are at the lowest level since February 2016. Lower prices could be expected unless production cuts are introduced or new PE production is accelerated.
Naphtha: Prices are at $420/mt after gaining $20/mt this week, in sync with oil prices and are expected to settle near this level. Cost to produce the naphtha pellet is near $0.44/lb.
PE Outlook and Suggested Action Strategies
30 Days: Continue with the same strategy. After the Formosa FM announcement, expect a very strong effort from the resin suppliers to drive the July $0.03/lb increase. Off-grade offers for July are now $0.03/lb higher. Resin markets are still not balanced due to the supply disruptions of the first half of 2017. HDPE injection resin buyers should cover needs early and continue to communicate requirements to suppliers. 60/90 Days: It is reasonable to expect $0.03/lb price erosion in the next 60-90 days if oil remains near $45/bbl. There is nothing present that could drive an increase outside a major disruption. Oil prices, soft global demand, and over-supply will be the key drivers for the second half of 2017.
PP Drivers
July PGP settles up $0.005/lb to $0.39/lb.
Market Overview
Braskem issued a price increase letter on July 5th calling for a $0.05/lb increase effective on August 1st. The five cents will be in addition to any change in PGP movement, making it a margin expansion attempt.
Just yesterday Total announced a margin expansion for $0.03/lb on August 1st. With LBI’s margin announcement from June 26th that makes three of large PP Majors to be in support of the August increase. Exxon is the only one missing.
Considering the July ACC data showed a record demand month in June and inventories drew by 125 million pounds, this margin play now has legs.
The ACC data, overall, was bullish and lends support to producer pricing power.
Demand has been volatile, but if H2 demand levels can maintain a 93.0% to 94.0% rate, margins will likely expand.
Formosa remains in FM, but all assets have returned to operation. Ineos also remains under FM. Current projections have them restarting over the next week.
Propylene
Spot PGP last traded at $0.36/lb, but is currently being offered at $0.3575/lb.
Spot RGP is valued at $0.25/lb.
EIA inventories are steady in the 2.8–2.9 million barrels range.
FHR’s PDH is running at reduced rates and Dow’s PDH is beginning their restart.
PP Outlook and Suggested Action Strategies
30 Days: July PGP is up $0.005/lb. PP prices will follow. Industry inventories are tight and spot prices offer little to no advantage to contract prices. 60/90 Days: August PGP has the potential to settle lower, although downside is limited. Whether any decrease in PGP transfers into lower PP prices is highly dependent on how demand performs moving forward and whether other suppliers will support the margin expansion attempt.
PS Drivers
PS processors were treated to a rare display of “doing what’s right” with the announced $0.06/lb price reduction for July by a lone producer.
Market Overview
Not all producers are aligned regarding the amount of the July price reduction. The range offers are $0.02- 0.06/lb.
The RMC in H1 2017 is a net +$0.03/lb; the PPC (Polymer Price Change) is a net +$0.11/lb (excluding the pending decrease). From a polymer price to RMC perspective, reducing July prices by $0.06/lb is warranted.
The GPPS to HIPS delta will be narrowing in July with Styrolution announcing an extra $0.01/lb reduction for HIPS.
Feedstocks
Benzene (BZ): Spot prices are fluctuating with the CO price movement, but remains near the July contract price. New capacity in Asia, along with more cracking of heavy feeds versus light feeds, created a “long” supply position in that region, which should translate into more imports into NA. In turn, potentially forcing NA BZ prices downwards.
Styrene Monomer (SM): SM spot prices appear to be hovering in the range of $0.47-0.50/lb. An unplanned outage at Styron’s Bayport facility created some short-term supply constraints. Forward offers for July are being discussed above $0.50/lb.
Butadiene (BD): Although price erosion in Asia has halted (a major NA price driver), NA prices are entering their 11th month of price declines. The forward price offers heard for August are below the $0.40/lb mark which is a leading indicator that prices have not yet found their bottom. NA prices are now trending below that of Asia, which could open an export arbitrage. However, NA prices may not be impacted because of the imports coming into NA from LATAM.
PS Outlook and Suggested Action Strategies
30 Days: PS prices will firm lower, but negotiations are recommened to obtain the full price decrease. 60/90 Days: Unless there is a significant shift in feedstock prices and PS demand, PS prices should stabilize. Buy strategically.
PVC Drivers
Spot ethylene pricing fell by a total of $0.06/lb over the past three weeks on ample supplies setting up a further reduction in ethylene contract pricing for July.
Market Overview
RMC for PVC moved lower by just over $0.01/lb in June as a further drop of $0.005-0.01/lb is expected in July due to lower priced ethylene and modest increases in chlorine.
Demand increased in June (ACC) from higher exports but lower domestic demand.
Some firming of overseas markets could draw up export pricing but for now it is relatively flat below $0.38/lb.
Supply & Demand
Supply: Unplanned outages have been resolved quickly as planned upstream maintenance is concluded. June production fell and modest 1% (ACC) as inventories, although lower, remained substantially above year ago levels.
Demand: Exports were up 25% as domestic demand fell 3% (ACC) leading to an inventory draw of 7%, but well above last year’s level at this time.
Feedstocks
Chlorine: Formosa’s Point Comfort, Texas chlorine facility has returned to full run rates after a shutdown in late June. Despite this return to production, domestic supplies are tight and demand is strong, keeping spot chlorine prices high.
Ethylene: Spot prices are at the lowest level since February 2016. Lower prices could be expected unless production cuts are introduced or new PE production is accelerated.
PVC Outlook and Suggested Action Strategies
30 Days: Continue to buy as needed, looking for opportunities to take advantage of downward pressure from ethylene as supplies improve. 60/90 Days: Supplies will continue at higher levels in Q3 for ethylene and PVC with chlorine output recovering from maintenance and outage. The supply/demand balance will determine the degree to which lower pricing is realized in Q3. Buy as needed.
PET Drivers
Forward outlook on PET raw material costs turns toward stability.
Market Overview
Spot PET was seen moving ~$0.01/lb higher from last week due to increase pressure from Asia as well as slowly rising feedstock prices.
USITC import data for May shows a growth of nearly 14 million pounds (+7.5%). Most of the growth was from Asia, outside of China, which was at an all-time high at 68 million pounds (35% of total imports).
WTI crude oil prices have started rising above the $45/bbl mark. Refinery rates have moved back to the mid 90’s, now at 94.5%.
Feedstocks
Paraxylene (PX): Upstream mixed xylene prices saw some minor upward movement last week, but has since stabilized, and is staying right above blending values despite being amidst the summer driving season. Spot PX in Asia has been relatively flat for nearly a month.
PTA: Forward projections for the US contract prices for PX/PTA are flat to marginally higher. Spot PTA in China started moving higher due to tightening supplies.
MEG: Chinese MEG demand has been picking up over the last two weeks, keeping upward pressure on MEG pricing. US contracts are expected to see a $0.01-0.03/lb higher settlement for July due to rising MEG p
PET Outlook and Suggested Action Strategies
30 Days: July PET is showing potential for either flat to $0.005/lb higher prices based on feedstock contract price expectations. June is likely to be a local trough: buy at June price levels and hopefully July will rollover. 60/90 Days: Expect minimal upward movements over the next few months. The most that PET could move is +$0.01/lb based on current projections. There shouldn’t be much volatility during that time. Keep an eye out for any significant changes in crude oil or supply availability, but otherwise expect stability.
The Formosa outage and several other minor outages have limited the incremental pounds available in July that are needed to pressure any downward price movement. Several suppliers continue to pursue a $0.03/lb increase in July.
Market Overview
As of today, it is not fully defined which of the suppliers are delaying the July increase to August.
Nova and Westlake announced a new $0.03/lb price increase effective August 1st on all polyethylene grades. All of Westlake’s previously announced and unimplemented increases have been rescinded.
Formosa Plastics force majeure remains in effect. There are supply limits on polyethylene resins after a power outage on June 25 at its production site in Point Comfort, Texas.
HDPE injection molding remains very tight. Several plant outages and an upcoming 80-day Nova turnaround will further contribute to this problem.
July exports started very slowly. Lower availability and higher prices kept traders from participating.
Secondary market activity is very slow after initial July price increase attempts are being rejected.
Resin markets are still not balanced due to the supply disruptions of the first half of 2017.
Feedstocks
Ethylene: Spot prices are at the lowest level since February 2016. Lower prices could be expected unless production cuts are introduced or new PE production is accelerated.
Naphtha: Prices are at $420/mt after gaining $20/mt this week, in sync with oil prices and are expected to settle near this level. Cost to produce the naphtha pellet is near $0.44/lb.
PE Outlook and Suggested Action Strategies
30 Days: Continue with the same strategy. After the Formosa FM announcement, expect a very strong effort from the resin suppliers to drive the July $0.03/lb increase. Off-grade offers for July are now $0.03/lb higher. Resin markets are still not balanced due to the supply disruptions of the first half of 2017. HDPE injection resin buyers should cover needs early and continue to communicate requirements to suppliers. 60/90 Days: It is reasonable to expect $0.03/lb price erosion in the next 60-90 days if oil remains near $45/bbl. There is nothing present that could drive an increase outside a major disruption. Oil prices, soft global demand, and over-supply will be the key drivers for the second half of 2017.
PP Drivers
July PGP settles up $0.005/lb to $0.39/lb.
Market Overview
Braskem issued a price increase letter on July 5th calling for a $0.05/lb increase effective on August 1st. The five cents will be in addition to any change in PGP movement, making it a margin expansion attempt.
Just yesterday Total announced a margin expansion for $0.03/lb on August 1st. With LBI’s margin announcement from June 26th that makes three of large PP Majors to be in support of the August increase. Exxon is the only one missing.
Considering the July ACC data showed a record demand month in June and inventories drew by 125 million pounds, this margin play now has legs.
The ACC data, overall, was bullish and lends support to producer pricing power.
Demand has been volatile, but if H2 demand levels can maintain a 93.0% to 94.0% rate, margins will likely expand.
Formosa remains in FM, but all assets have returned to operation. Ineos also remains under FM. Current projections have them restarting over the next week.
Propylene
Spot PGP last traded at $0.36/lb, but is currently being offered at $0.3575/lb.
Spot RGP is valued at $0.25/lb.
EIA inventories are steady in the 2.8–2.9 million barrels range.
FHR’s PDH is running at reduced rates and Dow’s PDH is beginning their restart.
PP Outlook and Suggested Action Strategies
30 Days: July PGP is up $0.005/lb. PP prices will follow. Industry inventories are tight and spot prices offer little to no advantage to contract prices. 60/90 Days: August PGP has the potential to settle lower, although downside is limited. Whether any decrease in PGP transfers into lower PP prices is highly dependent on how demand performs moving forward and whether other suppliers will support the margin expansion attempt.
PS Drivers
PS processors were treated to a rare display of “doing what’s right” with the announced $0.06/lb price reduction for July by a lone producer.
Market Overview
Not all producers are aligned regarding the amount of the July price reduction. The range offers are $0.02- 0.06/lb.
The RMC in H1 2017 is a net +$0.03/lb; the PPC (Polymer Price Change) is a net +$0.11/lb (excluding the pending decrease). From a polymer price to RMC perspective, reducing July prices by $0.06/lb is warranted.
The GPPS to HIPS delta will be narrowing in July with Styrolution announcing an extra $0.01/lb reduction for HIPS.
Feedstocks
Benzene (BZ): Spot prices are fluctuating with the CO price movement, but remains near the July contract price. New capacity in Asia, along with more cracking of heavy feeds versus light feeds, created a “long” supply position in that region, which should translate into more imports into NA. In turn, potentially forcing NA BZ prices downwards.
Styrene Monomer (SM): SM spot prices appear to be hovering in the range of $0.47-0.50/lb. An unplanned outage at Styron’s Bayport facility created some short-term supply constraints. Forward offers for July are being discussed above $0.50/lb.
Butadiene (BD): Although price erosion in Asia has halted (a major NA price driver), NA prices are entering their 11th month of price declines. The forward price offers heard for August are below the $0.40/lb mark which is a leading indicator that prices have not yet found their bottom. NA prices are now trending below that of Asia, which could open an export arbitrage. However, NA prices may not be impacted because of the imports coming into NA from LATAM.
PS Outlook and Suggested Action Strategies
30 Days: PS prices will firm lower, but negotiations are recommened to obtain the full price decrease. 60/90 Days: Unless there is a significant shift in feedstock prices and PS demand, PS prices should stabilize. Buy strategically.
PVC Drivers
Spot ethylene pricing fell by a total of $0.06/lb over the past three weeks on ample supplies setting up a further reduction in ethylene contract pricing for July.
Market Overview
RMC for PVC moved lower by just over $0.01/lb in June as a further drop of $0.005-0.01/lb is expected in July due to lower priced ethylene and modest increases in chlorine.
Demand increased in June (ACC) from higher exports but lower domestic demand.
Some firming of overseas markets could draw up export pricing but for now it is relatively flat below $0.38/lb.
Supply & Demand
Supply: Unplanned outages have been resolved quickly as planned upstream maintenance is concluded. June production fell and modest 1% (ACC) as inventories, although lower, remained substantially above year ago levels.
Demand: Exports were up 25% as domestic demand fell 3% (ACC) leading to an inventory draw of 7%, but well above last year’s level at this time.
Feedstocks
Chlorine: Formosa’s Point Comfort, Texas chlorine facility has returned to full run rates after a shutdown in late June. Despite this return to production, domestic supplies are tight and demand is strong, keeping spot chlorine prices high.
Ethylene: Spot prices are at the lowest level since February 2016. Lower prices could be expected unless production cuts are introduced or new PE production is accelerated.
PVC Outlook and Suggested Action Strategies
30 Days: Continue to buy as needed, looking for opportunities to take advantage of downward pressure from ethylene as supplies improve. 60/90 Days: Supplies will continue at higher levels in Q3 for ethylene and PVC with chlorine output recovering from maintenance and outage. The supply/demand balance will determine the degree to which lower pricing is realized in Q3. Buy as needed.
PET Drivers
Forward outlook on PET raw material costs turns toward stability.
Market Overview
Spot PET was seen moving ~$0.01/lb higher from last week due to increase pressure from Asia as well as slowly rising feedstock prices.
USITC import data for May shows a growth of nearly 14 million pounds (+7.5%). Most of the growth was from Asia, outside of China, which was at an all-time high at 68 million pounds (35% of total imports).
WTI crude oil prices have started rising above the $45/bbl mark. Refinery rates have moved back to the mid 90’s, now at 94.5%.
Feedstocks
Paraxylene (PX): Upstream mixed xylene prices saw some minor upward movement last week, but has since stabilized, and is staying right above blending values despite being amidst the summer driving season. Spot PX in Asia has been relatively flat for nearly a month.
PTA: Forward projections for the US contract prices for PX/PTA are flat to marginally higher. Spot PTA in China started moving higher due to tightening supplies.
MEG: Chinese MEG demand has been picking up over the last two weeks, keeping upward pressure on MEG pricing. US contracts are expected to see a $0.01-0.03/lb higher settlement for July due to rising MEG p
PET Outlook and Suggested Action Strategies
30 Days: July PET is showing potential for either flat to $0.005/lb higher prices based on feedstock contract price expectations. June is likely to be a local trough: buy at June price levels and hopefully July will rollover. 60/90 Days: Expect minimal upward movements over the next few months. The most that PET could move is +$0.01/lb based on current projections. There shouldn’t be much volatility during that time. Keep an eye out for any significant changes in crude oil or supply availability, but otherwise expect stability.
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