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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 31/07/2017 (13:33)
PE DRIVERS

July prices settled unchanged from June. Resin suppliers delayed the July $0.03/lb increase attempt for the first of August for all polyethylene grades.
Market Overview

Dow sent a letter this week to reaffirm their intent to implement the previously announced $0.03/lb increase for HDPE effective July 1, 2017. Dow also announced they are delaying the effective date of its previously-announced $0.03/lb price increase from July 1, 2017, to August 1, 2017, for LLDPE and LDPE.

Nova and Westlake announced a new $0.03/lb price increase effective August 1, 2017 on all polyethylene grades. All of Westlake’s previously announced and unimplemented increases have been rescinded.

Formosa Plastics Corporation, Texas has resumed production of all its polyethylene units. The force majeure will remain in effect with sales control or allocation, depending on the various products through the end of July.

ExxonMobil, Ineos and Formosa Plastics officially delayed the PE increases to August.
Nova’s August through October turnaround will limit incremental pounds for off grade and export.

July exports were slow. LDPE exports outpaced LLDPE and HDPE exports.
Secondary market activity remains slow. July availability met demand.

Oil prices rose to a seven-week high this week after Saudi Arabia pledged to curb exports next month and OPEC called on several members to boost compliance with output cuts to help rein in oversupply.

Feedstocks

Ethylene: Spot prices continued at the lowest level since February 2016 through July. There is almost no buying interest in the spot market. Ethylene markets are looking forward to 2018 PE startups to help support higher prices.

Naphtha: July prices started near $390/mt and finished near $425/mt after gaining $20/mt this week. Cost to produce the naphtha pellet is near $0.45/lb.

PE Outlook and Suggested Action Strategies

30 Days: Suppliers believe they will achieve the August price increase and will continue to push throughout August. Without any strong market-wide drivers, the chance of the increase remains minimal and prices should remain flat.

60/90 Days: As inventories continue to recover it is reasonable to expect $0.03/lb price erosion in the next 60-90 days if oil returns to below $45/bbl. There is nothing present that could drive an increase outside a major disruption. Oil prices, soft global demand, and oversupply will be the key drivers for the second half of 2017.

PP DRIVERS

Formosa announces a $0.03/lb increase for August!

Market Overview

Exxon and FHR are the only US PP producers that have not issued a margin expansion increase letter for August 1, 2017.

There are still many questions as to how successful this increase will be and to what degree. Will it only succeed if PGP settles down and suppliers can keep overall PP prices flat while at the same time gaining their margin?

Will producers focus on only getting the low-end of the market up? This mostly consists of non-formula based prices of which the indexes never captured the margin erosion that occurred early this year.

What will the indexes do amongst such murky waters?

The NA PP industry operating rate is averaging 91.0% this year. In 2015 when supply/demand supported margin growth, rates were closer to 93.0%

Demand has fallen off in July, and we are hearing reports of rate cuts by PP producers. So, although the market does not feel supportive of margin growth, the flip side says that US PGP prices are already the lowest in the world and a $0.03/lb margin expansion in PP will not incentivize buyers to import material.

Propylene

Spot PGP has traded from $0.3675/lb to $0.3725/lb, last trading at $0.37/lb. The implied contract price for August is roughly $0.39/lb, suggesting a rollover.
Dow and FHR PDH units are up, but ethane is advantaged in the cracker which will reduce propylene supplies from this stream.

PP Outlook and Suggested Action Strategies

30 Days: July PP prices are up $0.005/lb with PGP. August PP prices will be somewhere close to flat. We expect a mix of results. Part will depend on what PGP does. We expect flat to down slightly. Part will depend on who your supplier is and how they are handling the increase. The last part will depend on the indexes.

60/90 Days: There is potential for lower prices for both PGP and PP but we are close to the bottom and do not expect any major downward price moves.

PS DRIVERS

PS contract prices in July firm down. Americas Styrenics receives no support from the other PS producer for their announced $0.02/lb August increase.

Market Overview

PS producers were not aligned regarding the amount of the July reduction. Styrolution announced minus $0.05/lb for GPPS and minus $0.06/lb for HIPS; Total $0.03/lb, and AmSty $0.02/lb (for GPPS and HIPS).

How the pricing may have finalized:

AmSty sole supplier: minus $0.02/lb.

Total sole supplier: minus $0.03/lb.

Styro as a competitive situation; a price match by AmSty and Total.

It is possible that even without Styron as a competitive situation, the other two may have matched the decrease to prevent a loss of market shares. The proposed August increase not only lacks support from the other producers, but it also lacks support from a feedstock and supply/demand perspective (see below).

Feedstocks

Benzene (BZ): Relatively zero price volatility throughout the month. The average monthly price is down ‘$0.10/gal in July, which could prompt a lower CP price settlement for August. Forward bids/offers are unchanged ($2.42-2.55/gal).

Styrene Monomer (SM): After topping the $0.50/lb mark, spot prices had a slight recession. Contract prices have not caught up to the BZ price erosion, leading market participants to believe a lower CP (possibly $0.03/lb) is looming.

Butadiene (BD): Spot prices continued their descent, shedding another $0.055/lb during the week. Putting the monthly average decline at $0.15/lb. This reduction has prompted EMC to announce $0.37/lb for August contract prices (down $0.08/lb).
Supply/Demand

The market could be pegged as slightly unbalanced with supply a little better than demand. Although the days of inventory had a mild retraction, they are still about three days above the 3-year average.

PS Outlook and Suggested Action Strategies

30 Days: There is no support for the August increase; stay vigilant to avoid taking an increase that is not supported or accepted in the market.

60/90 Days: Buy as needed. This is the time when seasonal demand tapers off and prices have the potential to erode.

PVC DRIVERS

Persistent upstream rate restrictions at Formosa starting late in June have led to a FM declaration on PVC grades this week. In combination with strong demand, the market is expected to be more tightly balanced and less responsive to lower RMC.

Market Overview

Negotiations for August PVC pricing will pit lower RMC against restricted supply and demand.

RMC for PVC moved lower by $0.01/lb in June as a drop of $0.005-0.01/lb is expected in July and forecast close to flat for August.

RMC are at their lowest level since October 2016 even though PVC prices are up $0.06/lb in the same timeframe.

With strong domestic housing numbers from June and overseas demand supported by reduced availability from the NA FM and China coal based PVC, export prices have moved back above $0.38/lb.

Supply & Demand

Supply: The restriction in supply leading to the FM is expected to last through the middle of August.

Demand: Although generally robust, there are signs of some summer easing at the edges both domestically and overseas.

Feedstocks

Chlorine: Strong production volumes have helped to ease spot pricing.

Ethylene: Spot prices continued at the lowest level since February 2016 through July. There is almost no buying interest in the spot market. Ethylene markets are looking forward to 2018 PE startups to help support higher prices.

PVC Outlook and Suggested Action Strategies

30 Days: Continue to buy as needed, pressing for PVC decreases using downward pressure from ethylene as PVC production is weakened by this week’s FM. Demand is now the second biggest challenge to a successful reduction.

60/90 Days: Supplies will regain higher levels in September for PVC. The supply/demand balance will determine the degree to which lower pricing is realized in Q3. Buy as needed.
PET DRIVERS

Buyers’ resistance to PET price increases has caused PET producers to limit their output in a bid to control their cost, on the heels of higher feedstock prices.

Market Overview

The effect of the buyers’ price increase resistance has impacted the market as follows:
Created a shortage of spot PET.

Prompted PET producers to impose a surcharge to offset the higher feed cost (from purified isophthalic acid (PIA) price increases globally).

Severe margin compression for PET producers.

WTI crude oil prices have been nearing $50 again on reports of US inventory draws for oil and gasoline.

Feedstocks

Paraxylene (PX): Supply/demand remains balanced. Producer margins are compressed, pulling operating rates down under 80%.

PTA: Spot PTA prices in Asia have jumped by $40/mt in just a few weeks on the heels of a strong market and volatility in energy cost. Thus, PET prices in Asia and China are moving upwards, potentially dragging NA prices along.

MEG: August contract prices firmed higher at a range of $0.4049- 0.4099/lb. The Asian contract price (ACP) for August has been nominated at plus $30/mt (potential CP range $980-990/mt).

Imports into NA during the month of June were up ~12%.

Supply/Demand

Supply is pegged as tight, and capacity sold out; producers are controlling their output due to tight margin. They are unwilling to make more that contractually obligated if increases are not accepted.

Demand is exceeding market expectations.

PET Outlook and Suggested Action Strategies

30 Days: There is justification for prices to move higher, buy a little more than is needed as a precaution.

60/90 Days: Until demand tapers off and there is some feedstock price relief, producers will be under pressure to increase prices to minimize their margin losses. Continue to buy a little more than necessary until the feedstock price escalation abates.
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