Weekly Market Drivers for the USA
Inventories are at the highest level since well before the fall of oil that began in mid-2014.
The strength of the $0.03/lb August increase remains uncertain. Next week’s discussions will be key in determining the outcome of August.
Supplier price increase discussion points:
o Highest inventories in recent years with lower than average production rates.
o Three ongoing new PE plant startups.
o 2018 fall negotiations strategies to determine supply base.
o North American demand rates are average, up less than 4% for the first half 2016.
o Global PE prices remain firm. China future markets are lower.
o Oil prices steady and domestic feedstocks weak.
Film suppliers have not announced any increases. This action is an early indication that the film markets could not accept an increase.
Houston warehouses are reporting that exporters are preparing for a strong fall export market.
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.
Secondary market has achieved an average of $0.02/lb increase above June/July. Availability appears to be ample as requirements are being realized.
Ethylene: Expect higher prices heading into the October turnarounds and the new PE capacity startups.
Naphtha: Naphtha prices declined $10/mt to $460/mt after oil prices lost momentum and fell several dollars.
PE Outlook and Suggested Action Strategies
30 Days: Suppliers believe they will achieve the August price increase and will continue to push through the end 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.
Spot PGP trades at $0.39/lb!
Spot PGP is up slightly for the fifth week in a row. Following the $0.39/lb trade, bids were seen at $0.39125/lb and $0.3925/lb for August and September.
We are not hearing any definitive numbers for the August settlement, except that it will be flat to higher.
The implied contract price is $0.41/lb to $0.415/lb which is up $0.02/lb to $0.025/lb.
PGP export cargoes continue to get booked, which is keeping export volumes above average and adding to the bullish sentiment for propylene.
Polypropylene prices will move with PGP in August.
Producers have predominantly pushed out the $0.03/lb margin increase announced for August.
We have seen a good bit of homopolymer being offered by producers. Clearly there is excess. Most of these offers are going to direct accounts versus into secondary markets.
Spot PGP is valued at $0.39/lb to $0.395/lb based on recent trades and bids.
Spot RGP is valued at $0.24625/lb.
EIA propylene inventories were down from 2.94 million to 2.79 million barrels.
Ethane remains the advantaged steam cracker feed, and it appears heavy feeds will be brought to minimum percentages.
A Shell refinery in Deer Park went down unexpectedly.
In addition, fall refinery TARs start in September.
The EPD PDH unit has not yet been started. Current expectations are late September for start and Q1 2018 for full rates.
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: Propylene is feeling bullish. We think downside potential for monomer and polypropylene is limited moving forward. Flat to higher prices are expected.
The joke of the week: AmericasStyrenics announces a $0.02/lb increase for September 1, 2017!
AmSty received zero support from the other PS producers for the August increase, and will likely not receive support for the September increase. There is also no support from a RMC (raw material cost) perspective, nor from a demand perspective. RMC cost for August are virtually flat.
The increase announcement is interesting in the fact that PS producers in NA are coming under pricing pressure due to an increased interest in PS imports by processors.
Shell Pernis refinery (Europe’s largest) is now running at 50%. The FM’s have not yet been lifted in Europe.
Benzene (BZ): BZ prices have been relatively uneventful during August. There has been very little price variation since early in the month, with no impact from the Shell refinery outage in Moerdijk. Supply/demand is balanced.
Styrene Monomer (SM): The monthly average price is trending slightly higher than July. Although there are no outages reported, supply remains tight.
Butadiene (BD): The monthly average prices are trending $0.03/lb lower than July. There were multiple cargoes exported to China and S. Korea in July, and several more slated to depart this month. Supply is balanced, but these exports could create a tight supply position if they continue.
Crude Oil (CO): Prices topped the $50/bbl mark in anticipation of the August OPEC meeting, and the possibility of additional production cuts. Prices settled back down when OPEC agreed to keep the cuts as is.
PS Outlook and Suggested Action Strategies
30 Days: August price should firm flat, and September should follow suit. Minimize your buying.
60/90 Days: Demand in China needs to be watch closely, as this is the busy season for PS. A run-up in either PS or SM prices will pull NA prices higher too. Manage your inventory to make quick buys if necessary.
PVC production rose 11% month-over-month in July preliminary numbers (ACC)to a record of more than 1.45 billion pounds supplying 15% higher exports, 4% lower domestic demand, and an inventory build of 15%.
Even with the surge in production for July, we are still 10% below the monthly average for 2016.
Negotiations continue as RMC is expected back up to June levels as ethylene demand to new PE plants has elevated spot pricing.
A FM remains in place as export pricing is stable despite nominations for higher pricing in Asia.
RMC will remain close to December levels even though PVC prices are up $0.06/lb in the same timeframe.
Supply & Demand
Supply: July operating rates were above 90%, despite Formosa struggling with upstream operating since early in the month leading to a FM at the end of the month. Some supply will be lost in August.
Demand: Overall housing starts fell nearly 5%, led by a drop in multi-family construction. Permits were also off in July, by just over 4% again led by a drop in multi-family construction.
Chlorine: Strong run rates managed to improve supply availability enough to lower spot prices down $5/st.
Ethylene: Expect higher prices heading into the October turnarounds and the new PE capacity startups.PVC Outlook and Suggested Action Strategies
PVC Outlook and Suggested Action Strategies
30 Days: Buy as needed, pressing for recovery of RMC reductions/margin growth. You will be challenged by the PVC FM, but after last months’ operating rates and inventory build, this has little credibility. Demand and upward spot movement in ethylene will be the next argument made against reductions, even as RMC is near December levels and housing has seen a downturn.
60/90 Days: Supplies will regained a higher level in July with more recovery expected in September. The supply/demand balance is improving in the favor of the buyer. Buy as needed.
Lower crude oil and strong refinery run rates may help ease the upward momentum seen in PET price expectations for August/September.
Higher feedstock contracts, rising PET prices in Asia, and sturdy seasonal demand will still weigh in on PET pricing for August, which is likely to see an increase in the range of +$0.01-0.02/lb from July.
Spot PET pricing continued its recent stability this week as a result of unchanged market fundamentals, but could soon start to change based on the feedstock contract settlements.
WTI crude oil prices dropped nearly $3/bbl in two weeks, with the most notable losses seen this week.
Current prices are near $46-$47/bbl. Refinery rates are still at a high 96.1%.
Paraxylene (PX): The US PX contract for August settled up $0.0175/lb, at $0.415/lb. Gasoline prices were seen moving lower this week, which could be a sign that the blending value for mixed xylenes is becoming less economical amidst the summer driving season.
PTA: Formula contracts for US PTA for August are currently at $0.4285/lb. Spot PTA prices in China were nearly flat after seeing declines over the last few weeks.
MEG: MEGlobal announced a $50/mt increase in ACP for September, at $1,030/mt. Spot prices in Asia are starting to ease, but expectations for US pricing are for prices to peak in September before heading lower through the rest of the year.
PET Outlook and Suggested Action Strategies
30 Days: Continue the same strategy as last week; buy sooner than later to avoid the potential $0.01-0.02/lb price increase.
60/90 Days: September is starting to look like a peak from the raw material cost perspective. Holding out on purchases until October or focusing on July/August levels will minimize the effects of recent increase pressure.
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