Weekly Market Drivers for the USA
The outcome of the pending increase is still not determined. Suppliers are maintaining some force majeure and allocation positions allowing a level of price control.
▪ Resin prices have increased $0.07/lb since July; $0.03/lb in August and $0.04/lb by October 1st.
▪ Only a few suppliers have announced an October 15th $0.03/lb increase and one announced for November 1st.
▪ Sources report the CP Chem Cedar Bayou plant may not restart until December. In addition to PE, this plant produces the co-monomer hexene.
▪ LLDPE hexene availability concerns continue. Traders have been told not to expect any hexene for export
for the remainder of the year.
▪ HDPE blow molding inventories appear to be the first of the major resins to show inventory improvement.
▪ Hurricane Nate’s northeastern path did not have any direct impact on the plastics industry.
▪ Ethylene: Spot prices were relatively unchanged this week with only one major PE supplier participating.
▪ Naphtha: Naphtha steadied this week at $530/mt as oil remained steady near $50/bbl.
▪ Asia: The region is not expecting any price increase. Firmer prices are expected with high feedstocks and lower than average inventories due to the lack of resin from NA.
▪ Latin America: Prices in the region continue to increase as buyers look to other regions for supply. HDPE was offered at $0.62/lb FOB Houston BRC. LLDPE hexane exports may not be available from NA.
▪ Europe: Buyers are resisting price increases irrespective of the October ethylene contract which settled €30/mt higher for the second consecutive month.
PE Outlook and Suggested Action Strategies
30 Days: Same as last week: Expect the mid-October $0.03/lb price increase to be implemented or potentially delayed to November. Momentum for the $0.03/lb may begin to show some weakness as the recovery exceeds expectations. Continue to manage deliveries/transportation and resin requirements.
60/90 Days: Expected firm to higher prices for the remainder of the year. The August, September, and October price increases may remain into early 2018. This price level cannot be sustained as inventories recover.
Spot PGP sees a sharp decline!
▪ Spot PGP traded this week at $0.45/lb which is down $0.035/lb from its recent peak. Based on this
number, the implied contract PGP price for October would be $0.47/lb to $0.475/lb. This is still higher than the September contract price of $0.465/lb, but not by much. If spot prices can unwind some more, it is possible the market could be looking at a flat to down settlement.
▪ Despite losing significant production due to Harvey, propylene is suddenly feeling bearish. One thing we can point to is demand destruction at recent price levels, especially for exports of PGP and propylene derivatives.
▪ There are also signs of weak domestic demand. Current polypropylene inventories are at the very low end of the range, yet, we are seeing excess material becoming available.
▪ Polypropylene imports could also be playing a role. Interest in imports has picked up. Although we are not seeing large volumes of import deals getting done, we do know some orders are getting placed.
▪ September ACC numbers were posted this week. As expected, production numbers were down. August and September operating rates came in at 83.5%. The industry had been averaging 91.0% prior to Harvey.
▪ PP inventories are down 135 million pounds between August and September.
▪ Days of Supply currently sit at 28.6 days.
▪ Spot PGP traded recently down to $0.45/lb.
▪ Spot RGP is valued at $0.345/lb.
▪ PADD3 refinery rates continued to increase, up to 88.5%.
▪ EIA propylene inventory fell from 3.31 to 3.04 million barrels.
RTi PP Outlook and Suggested Action Strategies
30 Days: PGP and polypropylene prices are looking more flat for October. Looking at recent activity in the propylene market, October could be our short-term peak.
60/90 Days: There remains a $0.03/lb margin expansion increase for PP. It hasn’t been fully implemented. There are also two price letters out for November. We are not convinced this will fully go through.
RMC for PVC are pushing toward flat for October as ethylene spot moves down nearly $0.03/lb.
▪ Export pricing remained below $0.40/lb as global market demand was lackluster after the week-long holiday in China.
▪ The combination of higher RMC and lower export pricing indicates a potential ceiling of $0.03/lb for the October increase nomination of $0.05/lb with additional downward pressure from spot price RMC reductions.
▪ Although FM remains in place for a couple of manufacturers of PVC, declarations related to chlor-alkali production have been lifted.
Supply & Demand
▪ Supply: Production decreased 2% in September (ACC) to levels only 2% a year ago. The difference is the early drop in output in August versus last year when production levels were 6% higher.
▪ Demand: Exports fell 18% and domestic demand increased 5%, leading to a calculated inventory draw of 8% to a level 17% below this time last year.
▪ Chlorine: Chlorine prices are stable, but are still expected to fall as the summer demand season wanes and downstream maintenance helps to bolster supplies.
▪ Ethylene: Spot prices were relatively unchanged this week with only one major PE supplier participating.
▪ Asia: Demand in Asia is starting to gain momentum as China returns to the market after the Golden Week holiday and postmonsoon season in India is raising buying interest. The upcoming Diwali holiday next week has reduced some market activity in India, but will likely return in the next couple of weeks.
▪ Europe: Scheduled maintenance is likely to tighten upstream ethylene supplies, putting upward pressure on both ethylene prices and downstream PVC. Mixed feedstock prices alongside weaker
trading activity has kept PVC pricing stable.
RTi PVC Outlook and Suggested Action Strategies
30 Days: October production recovery continues as producers lift FM upstream. The speed of recovery, ethylene progression, and lower export pricing offers an argument for an increase in the range of $0.01-0.03/lb.
60/90 Days: Supply will improve substantially through the rest of Q4 as lost production recovery continues with slower exports. Buy as needed once the October increase is in the market, but actively demand price concessions for 2018 volume commitments.
PS producers remain adamant about implementing the October increase, despite a reversal in the feedstock prices.
▪ All PS producers now have an increase pending for October. This increase appears to be an attempt at capitalizing on the hurricane event and the fact that all the other polymer resin prices are escalating upwards.
▪ The justification for the increase has varied from tight PS supplies to higher RMC. However, RMC are actually falling, and while PS supplies may have been limited, demand has also succumbed to the seasonal slowdown, virtually off-setting the supply situation.
▪ From August to September the RMC did reflect an upward movement of $0.03/lb, but from September to October, it was virtually flat. So, from a RMC cost perspective, there should be no increase. The only feedstock which did have a gain was BD.
▪ Benzene (BZ): Spot BZ prices are already showing some signs of weakness, dropping ~$0.07/gal for the month so far. The forward bids and offers are also showing a retraction into the $2.58/gal range. Soft downstream demand and better supplies are contributing factors.
▪ Styrene Monomer (SM): Spot prices continue to erode. The monthly average price is tracking $0.07/lb lower than the previous month. Prices are being pulled downward by the softness in SM prices in Asia. The September contract price firmed up $0.04/lb.
▪ Butadiene (BD): BD spot prices may come under pressure from the dramatic decline in Asian prices. In addition, imports from Europe are being considered, given the recent drop in their price offers. Imports are needed to alleviate the current supply tightness.
Unchanged dynamics kept PET price assessments flat for the week.
▪ A letter from M&G was released, stating that they will be shutting down their Apple Grove, West Virginia plant in mid-November, if they do not receive additional funding or liquidity.
▪ PET supply availability is quite tight, especially since M&G customers are now searching for material elsewhere. Imports are expected to rise to fulfill these new potential orders.
▪ USITC import data showed a 13% decrease in August volumes (down 25 million pounds month-over-month). Most notable of the changes was a 15.5-million-pound decrease to Mexico at -26%.
▪ WTI crude oil prices have been staying between $50 and $51/bbl this week. Refinery rates remained in the high 80’s.
▪ Paraxylene (PX): Although there is no full settlement yet, PX contracts for September are likely to be $0.03/lb higher. Market fundamentals were reportedly muted, with weak spot demand balanced by lower supply availability.
▪ PTA: The September formula PTA contracts are estimated to be at $0.4486/lb. Forward outlooks for domestic PTA pricing is bearish, following expectations in the upstream PX markets. Slower trading activity kept spot prices in Asia flat.
▪ MEG: October US contracts fully settled at a +$0.03-0.04/lb split. MEG exports experienced a notable spike in July, more than doubling June volumes, but has since returned near average levels for August. Spot prices in Asia were unchanged for the week.
▪ Asia: Buying interest started to rise after China returned to market after the Golden Week holiday, pushing PET prices roughly $10/mt higher week-over-week. SEA PET markets are still adjusting to the antidumping duties that Japan placed on China.
▪ Europe: PET supplies are reportedly improving while demand is steady. Steady imports along with improved operating rates have supported stronger supplies, which managed to pull PET prices down €25/mt for the week.
RTi PET Outlook and Suggested Action Strategies
30 Days: M&G continues to add fuel to the fire during the post-Harvey recovery. October prices are expected to
see a $0.01-0.02/lb increase.
60/90 Days: November is likely to continue to show bullishness. Price pressure could ease up by the end of the year, but we may not see a return to pre-Harvey price levels until Q1 2018. Focus on securing resin in the short term and be prepared to seek out decreases in the December/January timeframe.
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