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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 18/09/2017 (14:38)
PE Drivers

Allocations through October are expected. Off-grade offers are minimal and export sales remain meager. Both off-grade offers and any new export actions will be the leading indicators of improvement of resin availability.

Market Overview

Most ethylene and polyethylene production has restarted.

Exxon and CP Chem have followed LBI and Dow with a September 15th $0.04/lb increase. Ineos announced an October 1st $0.04 increase.

CP Chem’s Cedar Bayou facility may be down as long as two months. This plant supplies HDPE injection, and availability of HDPE is expected be the poorest of the PE resins.

Rail service back to the Houston area has restarted. Suppliers are now asking for railcars to be returned.

Suppliers continue to offer off-grade resins to brokers at $0.10-0.15/lb higher than pre-Harvey prices.

This week off-grade resin is now selling at $0.15-0.25/lb above the pre-hurricane prices.

Feedstocks

Ethylene: More PE restarts could push the spot market price up considerably higher if the need outpaces availability. However, ethylene plant restarts give the impression that they are advancing efficiently.

Naphtha: Naphtha prices increased again, $15/mt higher than last week, up to $495/mt with oil prices moving toward $50/bbl.


PE Outlook and Suggested Action Strategies

30 Days: Same as last week. Manage deliveries/transportation and resin requirements. Expect delivery delays and resin allocations. Until more information is available regarding the status of rail shipments and plant restarts, there is very little processors can do.

60/90 Days: Expect firm to higher prices for the remainder of the year. The speed to recovery in the Gulf Coast is the key driver.

PP Drivers

PP Inventories draw 95 million pounds!

Market Overview

Restarts continue to progress post-Harvey. Refineries had over 20% of capacity offline at its peak due to Harvey. About 13% of capacity is still impacted. FCC units are not ramping up as fast the crude distillation units, however, and this will impact RGP supplies.

The majority of polypropylene assets have returned to operation or are in the process of restarting. Braskem’s Seadrift unit is back online.

Major ports in the Gulf are operational with just a few restrictions. Railroads are almost fully operational with only a few routes still impacted.

PP converters are working closely with their suppliers to coordinate shipments and allocations. The majority of converters appear to be covered for the short term. Others are in scramble mode.

Contract PGP has not settled for September, but current spot prices indicate an increase of $0.06/lb to $0.07/lb. Polypropylene is expected to follow PGP higher at a minimum.

How much margin gets implemented in September is not fully known at this point. We are not hearing producers pushing prices up further than the monomer increase for September. But, how the indexes report this month could have some influence on the matter.

According to the ACC, PP production was 7.8% below the yearto-date average. Operating rates were 83.5%.

Inventories were down 95 million pounds. As many of the Harvey related outages carried into September, we expect that this month will a light production month as well. This could keep market dynamics tight for several months.

PP Outlook and Suggested Action Strategies

30 Days: September PP prices are likely to be up by $0.06/lb to $0.10/lb. Availability will be tight. Spot prices are currently carrying a premium to contract prices.

60/90 Days: Propylene supply is a concern. We expect PGP prices to be higher again in October. PP prices will follow. Possible to see buyers to turn to imported PP.

PS Drivers

PS prices are poised to firm higher in September.

Market Overview

The proposed increase exceeds the RMC, so processors are having discussions regarding the amount that should be implemented.

Producers are losing feedstock support for their pricing leverage. Remarkably, feedstocks did not have a consistent or significant run-up in prices. BZ spot prices had a small spike which quickly evaporated.

Despite the lack of market indicator support, AmSty announced an October increase of $0.03/lb.

High and volatile SM prices in Europe have pushed the PS processors to a point where they are now actively replacing PS with PP.

PS sellers in Europe and Asia are citing Hurricane Harvey as justification for their high feedstock/polymer prices. SM prices in both regions saw triple-digit hikes.

Feedstocks

Benzene (BZ): After hitting almost $2.80/gal last week, spot prices have settled back near the $2.69/gal contract price. Forward bids/offers remain between $2.61/gal and $2.70/gal.
Styrene Monomer (SM): Supply is sold out, but prices saw some relief from falling BZ prices. NA SM prices are sensitive to global prices, and right now those prices are escalating. NA could see a sharp rebound in prices over the next several days. The export arb is open, but any discretionary material shipped now would be risky for the recipient because it would not arrive until November, a time when the market expects SM prices to recede.
Butadiene (BD): The fact that BD spot prices are static is amazing considering that supplies are tight and material is being exported again. The static price levels could be attributed to muted trading in the wake of Hurricane Harvey.

PS Outlook and Suggested Action Strategies

30 Days: Challenge the amount of the September increase. It exceeds RMC cost.
60/90 Days: From a demand perspective, PS prices should not move upwards. If feedstock prices remain at current levels, aggressively challenge the October announced increase.

PVC Drivers

All PVC plants are running, but at reduced rates as recovery continues and a price increase of $0.05/lb was nominated for October.

Market Overview

Feedstock recovery is also well underway as chlorine prices are steady and ethylene spot saw another $0.0125/lb increase this week.

Raw material costs are expected up $0.02-0.04/lb across August and September due to higher ethylene, approaching levels last seen in February.

Price increase nominations for October will see support from lost production from Harvey in addition to reduced operating rates until ethylene, chlor-alkali, and peroxide supplies come back.

Asian prices are also proposed higher, given strong demand and constraints in global supply that will in turn support spot export pricing, which is nearing $0.41/lb with limited availability.

Supply & Demand

Supply: Formosa and Oxy are both reportedly producing PVC at reduced rates as infrastructure and feedstocks recover. The key will be how quickly can higher operating rates can be achieved.

Demand: Demand is expected to be stronger than usual at this time of year as home and infrastructure damage is repaired in Texas and Florida.

Feedstocks

Chlorine: Supply constraints seemed to be balanced by slow demand due to lessened downstream PVC production post-Harvey, keeping spot chlorine prices flat for the week.

Ethylene: More PE restarts could push the spot market price up considerably higher if the need outpaces availability. However, ethylene plant restarts give the impression that they are advancing efficiently.

PVC Outlook and Suggested Action Strategies
30 Days: The PVC market will show production reductions in August from pre-emptive shutdowns with more significant losses in September. October recovery could be substantial if the ramp up process goes smoothly with strong production expected throughout Q4. The speed of recovery and ethylene progression should offer an argument for less than $0.05/lb of increase, but we need to see more time pass in the recovery process before finding that basis.

60/90 Days: Supply will remain tight through most of Q4 as lost production recovery continues into the slower demand season. Buy as needed once the October increase is in the market, but actively demand substantial price concessions for 2018 volume commitments that are well past Harvey.

PET Drivers

September price increase announcements of $0.06-0.07/lb likely to stick in the wake of Hurricane Harvey, despite RMC increases of ~$0.02-0.03/lb.

Market Overview

Alpek announced that they will be halting all PTA supplies to M&G in Mexico and Brazil because of overdue payments of approximately $49 million. They also showed concern about the progress of the M&G corpus Christi facility.

USITC import data showed a slight gain of +11% in total PET import volumes for July, most of which was due to an additional 21.6 million pounds (+58%) from Mexico.

There was a minor shift in imports away from Asia and Canada (minus 6.9 & 6.1 million pounds, respectively) to regions like Mexico, Europe, and Latin America.

WTI crude oil prices started the week in the low $48’s, but ended the week near $50/bbl. Refinery rates moved to an even lower 77.7% (only 60.7% PADD3 gulf coast).

Feedstocks

Paraxylene (PX): While MX values are still on the rise, gasoline prices have started to ease. An estimated ~53% of the US PX capacity is still offline due to the hurricane shutdowns.

PTA: September PX/PTA contracts are expected to be $0.01- 0.02/lb higher, but October and November are showing signs of stability.

MEG: Roughly 45% of US MEG capacity is still offline post-Harvey. Global supplies are tightening. MEG inventories in China were seen moving even lower, and prices were seen climbing $50/mt higher.

PET Outlook and Suggested Action Strategies

30 Days: Continue to fight any increase pressure by following the RMC change. These increases could also be a margin expansion play, riding on the waves of the Hurricane Harvey outages. PET rarely moves this significantly due to supply/demand imbalances, but it could easily happen.

60/90 Days: PET pricing from the RMC perspective are likely to peak in October, before heading lower through the rest of the year. From the market fundamentals perspective, supplies should improve and demand should be lower through Q4. Buy as needed, and expect lower pricing in late Q4 2017 to early Q1 2018.
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