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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 14/08/2017 (12:05)
PE Drivers

Inventories continued to improve again in July, increasing over 600 million pounds since February with production rates averaging five percent less than the three-year-average.

Market Overview

The strength of the $0.03/lb August increase remains uncertain as market challenges have not been initiated with resin suppliers.

July HDPE production was the highest recorded production month of 2017.

Export offers continued minimal, averaging 21% of the 85% production rate, down almost 6%.

The other resin suppliers have not followed the LBI and Dow letters announcing they will increase the selling price of all polyethylene resins $0.04/lb in September.

The Dow and Exxon plants are expected to produce pellets in August. There is no new current production information. Sources report the CP Chem facility is complete with a fall start up expected.

Nova’s August-through-October turnaround will limit incremental pounds for off-grade and export.

Secondary market activity remains slow. Brokers are attempting a price increase from July with marginal success.

Feedstocks

Ethylene: Trader activity kept the price a few cents higher this week. Speculators are anticipating high prices heading into the October turnarounds and the new PE capacity is projected to further increase prices from today’s levels.

Naphtha: Naphtha prices increased nearly $30/mt this week to $465/mt as oil prices settled in the high $40’s

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 over-supply will be the key drivers for the second half of 2017.

PP Drivers

Spot PGP moves higher to $0.3825/lb!

Market Overview

Spot PGP prices continued to make slight gains. Although we have not heard of any official nominations for August contract prices, current spot prices suggest an up $0.01/lb to $0.02/lb settlement is in play.

Heavy feeds remain priced out of the feedslate. If crackers switch to a max ethane feed scenario, propylene supply takes a hit.

There appears to be some PGP demand from Europe due to outages. Exports of PGP further adds a bullish tone to the market.

In polypropylene, we have seen several cases where multiple producers have backed out their $0.03/lb margin expansion for August.

Our view is that the broader market will be seeing PP prices move with monomer only, without additional margin, and expect that the indexes will report the same.

July demand was down as expected but recent ACC data showed that July was still a strong demand month overall.

Production was also strong with a 95.4% operating rate. Inventories grew by 42 million pounds. Days of supply are at 31.2 days.

Margin expansion is currently on pause.

Propylene

Spot PGP is valued at $0.3825/lb with little activity.

Spot RGP is valued at $0.2475/lb.

EIA propylene inventories were up from 2.82 million to 2.94 million barrels.

The EPD PDH is expected to start at reduced rates sometime in the next 30 days.

Fall refinery TARs start in September.

PP Outlook and Suggested Action Strategies

30 Days: August PP prices will be flat to higher depending on the August PGP settlement.

60/90 Days: Polypropylene demand will be a key factor moving forward. Weaker demand will make margin expansion difficult. Plus, polypropylene rates cuts would help offset some of the tightness being felt in propylene monomer.

PS Drivers

Despite a pending $0.02/lb PS increase announcement from one PS producer, August PS prices should firm flat.

Market Overview

AmSty is plus $0.02/lb, Total is non-committal and Styro is flat for August. AmSty has no support from either producer, nor from a feedstock perspective. On the contrary, AmSty is already being approached for an additional price concession.

AmSty is justifying their increase by stating July demand was strong, with August looking to match. However, with the seasonal demand expected to wane in the coming weeks, the market is unwilling to pay higher prices for their material.

Several situations need to be watched closely as they could impact the NA PS price.

- Asia SM TAR’s creating tight SM supplies, coupled with the start of Asia’s PS seasonal demand (September).

-The fire at the Shell Pernis refinery (Europe’s largest). Presently, aromatics supply is not affected, only ethylene and propylene. BASF and Shell have declared FM (on ethylene/propylene) at their Moerdijk facilities. Both also have SM production at the same facility which is why the situation needs to be monitored.

Feedstocks

Benzene (BZ): August CP’s split; $2.48/gal & $2.49/gal. Minimal trading activity. Supply/demand is balanced, with a slight edge given to better supply. The forward bids/offers remain near contract price levels.

Styrene Monomer (SM): July CP’s firmed down $0.04/lb. The contract price range is $0.59/lb to $0.8025/lb. Supply remains tight, but orders continue to be filled. The export arbitrage is currently closed.

Butadiene (BD): August CP’s split. EMC minus $0.08/lb to $0.37/lb; TPC, LBI and Shell minus $0.05/lb to $0.40/lb. The price bottom may have been found as spot prices are showing signs of some upward pressure. We have seen this before, and prices continued to come off, but it bodes monitoring.

Crude Oil (CO): The market is closely watching the OPEC meetings underway this week. Discussions are centered on implementing additional production cuts, along with decreasing export volumes to influence CO prices higher.

PS Outlook and Suggested Action Strategies

30 Days: Barring any significant global event, August PS prices will firm flat. Buy as needed.

60/90 Days: Demand and feedstock prices will decide the price direction in the coming months. Based on the current market drivers, both should support continued flat prices. Buy conservatively to only meet orders.

PVC Drivers

After contract ethylene for July settled down $0.0125/lb, August threatens to erase the reduction as spot ethylene moves higher on new PE plant start-ups.

Market Overview

Negotiations continue for lower PVC pricing based on margin gains earlier this year, despite the potential return to June RMC levels when August ethylene contract is settled in early Sept.

A FM remains in place restricting supply of some grades as export pricing is stable despite some indications of demand strength overseas.

RMC will remain close to December levels even though PVC prices are up $0.06/lb in the same timeframe.

Supply & Demand

Supply: The Formosa FM in Texas continues as the FM in Europe with Shintech is being resolved.

Demand: Remains seasonally strong as there is some indication of reduced spending in support of pipe demand.

Feedstocks

Chlorine: Balanced market dynamics kept chlorine spot prices unchanged from last week, although still at nearhistoric highs.

Ethylene: Trader activity kept the price a few cents higher this week. Speculators are anticipating high prices heading into the October turnarounds and the new PE capacity is projected to further increase prices from today’s levels.

PVC Outlook and Suggested Action Strategies

30 Days: Buy as needed, pressing for a share of RMC reductions. You will be challenged by the PVC FM, but this does not impact the largest volume grades. Demand and upward spot movement in ethylene will be the next argument made against reductions, even as RMC is near December levels.

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

PET Drivers

Forward outlook shows upward movement in raw material costs until Q4.

Market Overview

Domestic spot pricing has been practically unchanged for nearly a month now, despite rising raw material costs and PET pricing in Asia that is trending higher.

Although demand is still pegged as above average for the summer season, the supply/demand balance hasn’t seen much change over the past few weeks, helping to keep PET pricing stable in the short term.

WTI crude oil prices have been quite stable for the about two weeks, staying right below $50/bbl. Refinery rates have increased to a strong 96.3%, which is the highest EIA reported US refinery rates since August 2005.

Feedstocks

Paraxylene (PX): Upward movement in Asia has pushed upstream mixed xylene (MX) prices higher, slightly widening the gap between MX and the gasoline blending values. The August Asian contract price (ACP) settled at $810/mt, a $34/mt increase from July.

PTA: Weaker upstream supplies of PX in Asia, due to a few production issues, was met with improved PTA production from plant restarts. The forward outlook for PX/PTA US contracts may see an increase in August, but could stabilize through the next couple of months.

MEG: Domestic MEG demand is strong, supplies are tight, and prices in Asia are rising; all of which have been putting upward pressure on US MEG prices. This upward movement could slow once seasonal downstream demand eases and an upcoming planned outage concludes by October.

PET Outlook and Suggested Action Strategies

30 Days: August is still set for an increase in the +$0.01-0.02/lb range. Buy sooner to avoid the increase.

60/90 Days: Feedstock outlooks are starting to favor a potential PET RMC decrease heading into Q4 2017. Buy sparsely until most of the decrease factors start to take effect in the October/November timeline.
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